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Chart of the Week – Season for Metals
September 02, 2010
Yesterday kicked off what has historically been the strongest period (September through December) of the year for mining stocks and gold. We discussed this back in August (Ready, Set, Gold!) but if you were out enjoying a family vacation, don’t worry you probably haven’t missed the opportunity.
Research from Barry Cooper at CIBC shows that while gold has historically performed well in September—prices have risen 81 percent of the time over the past 20 years—those investors who held their investment through the end of the year reaped the most benefits.
CIBC measured the performance of gold stocks over the past eight years for two time periods: August 20-September 20 and August 20-December 31. The shorter period netted a gain of 12 percent while holding the latter gained 28 percent.
Seasonal patterns are strong for gold but what about base metals?
This chart from Desjardins Securities shows the percentage change for the TSX Mines & Metals Index during the last four months of the year. Like gold, this base metals index has increased 10 of the past 12 years during the September-December period, with a median gain of 7.5 percent.
If you throw out the extreme years—up 50 percent in 2003 and down 68 percent in 2008—then the average increase rises to 10.5 percent.
Although these seasonal patterns have been strong for some time, it’s important to remember that they’re never 100 percent. However, they can be used to increase our probabilities of making the right investment decisions.
The S&P/TSX Capped Metals and Mining Index is a capitalization-weighted index.
Mastering Asset Allocation
September 01, 2010
The legendary investor Sir John Templeton had high praise for Roger Gibson, saying “he guides investment advisors through a logical process for making important asset-allocation decisions.”
Harry Markowitz, who won the Nobel Prize for inventing modern portfolio theory, says Roger’s book, Asset Allocation: Balancing Financial Risk, “presents individual investors and their investment advisors with a balanced, professional view of the investment process.”
Don Phillips, who heads fund research for Morningstar, goes even further, saying Roger is “without a doubt the best and most articulate voice on the subject of asset allocation today.”
You can hear that articulate voice by joining us for a free webcast with Roger Gibson.
The webcast title is “The Role of Commodities in Asset Allocation,” and it will take place on Thursday, September 9, at 11 a.m. Eastern time. Register here.
Commodities have been gaining acceptance as a permanent asset class, and during the webcast Roger will show you where commodity-linked equities can fit into a portfolio to provide diversification while managing volatility.
The webcast is intended to deliver news you can use, so I hope you will be able to join us on September 9.
Diversification does not protect an investor from market risks and does not assure a profit.
Opportunities in the Bad News?
August 30, 2010
There’s been plenty of bleak news coming out of the equity markets and the U.S. economy as a whole. Are there opportunities hidden within that bad news? Are we now in one of those “blood in the streets” scenarios that Rothschild (and many investors after him) found so appealing?
If you believe in the cyclical nature of markets, the chart from Stifel Nicolaus may be of interest. This chart shows the 10-year rolling return of the S&P Stock Market Composite going back nearly two centuries—current performance (inside the circled area) is at low levels only seen during the Great Depression.
The negative news flow keeps many investors on the sidelines waiting for sunnier days, while those who believe that what goes down eventually comes back up may see an opportunity to snap up equities at bargain prices.
A similar story line may be created for the next chart, which was produced by Old Mutual insurance company. The MSCI World Index is a measure of stock market performance across the world (including the U.S.).
The chart shows how the growth rate can swing wildly based on global events, but what’s clear is that the negative rolling 10-year growth since 2008 is unmatched in the past four decades. Markets have always bounced back, and as you can see on both charts, the best gains tend to be posted early in the turnaround.
One more data point—over the past decade, Treasury bonds have outperformed U.S. equities by nearly 90 percent. This is the widest margin of such outperformance over a rolling 10-year period in more than a century.
J.P. Morgan points out that history shows equities eventually reversing that trend, and when they do, they on average climb more than 250 percent over 10 years—a compounded annual growth rate of 13.6 percent.
The persistent bad macroeconomic news makes another round of “quantitative easing” (i.e., money injection) by the Federal Reserve increasingly likely. This could be good for equities by lowering long-term interest rates, stimulating the economy and boosting valuations.
It’s often said that hope is not an investment strategy, and that’s certainly true. It’s also true that hopelessness is also not an investment strategy. History and cycles are not perfect predictors, but it’s worthwhile to pay attention to these indicators.
The S&P Stock Market Composite is a combination of major market indices used to gauge overall equity performance dating back to the earliest days of the market. Diversification does not protect an investor from market risks and does not assure a profit. The MSCI World Index is a capitalization weighted index that monitors the performance of stocks from around the world.
India’s Achilles Heel
August 27, 2010
Poor infrastructure continues to be an Achilles heel for India—if it were better, analysts say, the country could add 1-2 percentage points to its annual economic growth rate of around 8 percent.
India spends $17 per capita annually on infrastructure and capital investment—by comparison, China spends $116. With millions of people moving to India’s cities each year, McKinsey says the country will have to spend $1.2 trillion on infrastructure just to meet basic needs. This works out to $134 per person, or about eight times current levels.
The Delhi government has a plan to spend $500 billion on infrastructure by 2012 and twice that amount in the subsequent five years. But there’s a big difference between plans and execution—India is scheduled to host the Commonwealth Games in just a few weeks, but many of the venues are still not ready due to corruption and inefficiencies.
Eight miles of new roads are being built each day, but the official target is 12 miles per day. Desperate for more electricity, the Indian government turned to a failed Enron project that had been dormant for a decade.
One reason for lagging infrastructure is a lack of qualified engineers. A New York Times article this week said many of the best and brightest are going into the high-tech sector rather than the less glamorous (and less lucrative) world of roads and bridges.
Despite the challenges, Morgan Stanley analysts think India’s economy could begin growing faster than China’s as early as 2013. MS says this is because India’s ratio of working age population to dependents is improving while China’s is declining. Their government has been successful at creating jobs and the country has a strong footing in the lucrative global services export market.
But for India to overtake China’s growth pace, it’s vital that the country get better at executing on its ambitious infrastructure vision.
Risk-Taking: It’s Personal
August 26, 2010
Whether we like it or not, biases affect how we make decisions. The personal experiences we have with races, cultures and even brands can have a large effect on what we like and what we don’t.
These biases also impact investment decisions. A study from the University of California and Stanford showed that, when it comes to risk-taking, personal experience carries far more weight than knowledge of market events.
For instance, someone who lost money when the tech bubble burst a decade ago may completely avoid the tech sector - once bitten, twice shy.
The risk-taking study found that people who grew up during the 1970s market doldrums were less likely to buy stocks than those who remembered the 1950s and 1960s boom years. For many, this meant they missed out on the great bull market of the 1980s and 1990s.
We’re seeing a similar scenario play out today as investors hurt in the 2008-09 stock market collapse continue to pour money into Treasury bonds to avoid risk even though Treasury yields are near historic lows.
This chart from Stifel Nicolaus shows the 10-year rolling return of the S&P Stock Market Composite going back nearly two centuries – current performance (inside the circled area) is at low levels only seen during the Great Depression.
The data keeps many investors on the sidelines, while others see an opportunity to snap up equities at bargain prices.
Building and maintaining a portfolio isn’t easy. To help educate investors on the benefits of commodity-linked investments, we’ve scheduled a webcast on September 9 with asset allocation guru Roger Gibson. Roger wrote the definitive guidebook on long-term investing, Asset Allocation: Balancing Financial Risk*, and will be sharing his 25 years of educational experience with investors.
Click here to register and to find out more information about the event.
*By clicking the link above, you will be directed to Amazon.com. U.S. Global Investors does not endorse all information supplied by this website and is not responsible for its content. The S&P Stock Market Composite is a combination of major market indices used to gauge overall equity performance dating back to the earliest days of the market. Diversification does not protect an investor from market risks and does not assure a profit.
Net Asset Value
as of 09/02/2010
- Global Resources Fund
PSPFX $8.72 +0.08 - Gold and Precious Metals Fund
USERX $17.25 +0.18 - World Precious Minerals Fund
UNWPX $19.21 +0.13 - China Region Fund
USCOX $8.50 No Change - Eastern European Fund
EUROX $9.05 +0.03 - Global Emerging Markets Fund
GEMFX $8.15 +0.01 - Global MegaTrends Fund
MEGAX $7.67 +0.03 - All American Equity Fund
GBTFX $19.86 +0.15 - Holmes Growth Fund
ACBGX $15.79 +0.19 - Tax Free Fund
USUTX $12.61 No Change - Near-Term Tax Free Fund
NEARX $2.27 No Change - U.S. Government Securities Savings Fund
UGSXX $1.00 No Change - U.S. Treasury Securities Cash Fund
USTXX $1.00 No Change