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“Extreme” Hurricane Forecast – Energy at Risk
March 11, 2010
The private forecasting firm AccuWeather predicts an “extreme” Atlantic hurricane season in 2010, and if true, that could have a significant impact on energy prices this summer.
In fact, AccuWeather says 2010 will be look a lot like 2008 in terms of hurricane activity. In 2008, there were 17 storms big enough to get a name – the biggest was Hurricane Ike, which killed nearly 200 people and did more than $6 billion in damage as it tore through Haiti and flattened Galveston Island, Texas.
By comparison, last year was the mellowest hurricane season since the late 1990s – only two storms reached land along the Gulf Coast.
The Gulf Coast, of course, is an important energy region – it accounts for a quarter of U.S. oil production, 15 percent of domestic natural gas and 40 percent of the nation’s refining capacity.
In 2008, dozens of offshore natural gas platforms were destroyed and production fell 98 percent during Ike – it took months to bring production back up. Many gas pipelines and processing plants were shut down altogether and others operated well below capacity. Oil prices spiked more than 15 percent and gasoline inventories slid to 40-year lows after refineries were halted due to lack of electricity.
The prospect of a major hurricane season adds to other pressures on energy prices heading into the busy summer driving season. Gasoline prices in the U.S. are predicted to top $3 a gallon this summer, and that number came out before the hurricane forecast.
The International Energy Agency (IEA) has raised its global oil demand forecast for 2010 as a result of strong economic activity in Asia – nearly half of the additional demand this year will be from China, IEA says. OPEC is also predicting a demand hike in 2010.
In addition, demand has recovered to 2008 levels due to the improved economic conditions in North America, Europe and the former Soviet Union.
We have often pointed out that the long-term oil supply response has been weak around the world, so if AccuWeather lives up to its name in 2010 (like it did last year), the short-term impact of reduced Gulf production and refining could be a significant price driver.
Travel With Us to India
March 10, 2010
The Winter 2010 issue of our award-winning Shareholder Report magazine is called “Journey to India,” and it includes my observations from a recent research trip to this dynamic nation.
This issue also highlights trends and developments for all of our key investment sectors at U.S. Global.
We make the case for commodities as an important part of your portfolio, and we describe how the developing world’s growing middle class will put the squeeze on the supply of many precious resources.
We also take a look at how gold outperformed other asset classes over the past decade and provide updates to what’s been going on in China.
Click on the link below to see the online version of Shareholder Report. To get a hard copy, send an email with your mailing address to webmaster@usfunds.com.
Outlook on Gold, Oil and Emerging Markets
March 09, 2010
Yesterday afternoon I sat down with Aaron Task from Yahoo! Finance’s Tech Ticker to discuss my outlook for gold and oil. Despite a recent run-up in gold prices, I explained to Aaron that I am still bullish on gold.
I think there are many compelling factors both from a supply side and from the demand side that looks like gold will trade higher…The only supply coming to the market is from central banks. Supply from mines is contracting as it’s getting more difficult, more expensive to produce an ounce of gold and deliver it to the marketplace.
Aaron and I also discussed how each commodity has its own DNA of volatility and investors need to be mindful of that. Specifically, we discussed price volatility for oil.
Based on historical patterns, oil could easily jump to $100 or fall twenty dollars to $60. That’d be normal volatility…It’s not just supply and demand around the world, it’s also because oil is priced in dollars and these swings in the dollar exaggerate the supply demand factors.
Lastly, I explained to Aaron why the rise of a middle class in emerging markets is a catalyst for a long-term shift in consumption patterns for goods and services.
What’s really significant is the rise of the middle class…What happens when you get 30 million out of 1.3 billion people making $50,000 a year? These big changes in consumption patterns take place. That’s why we’re seeing Cartier and Louis Vuitton and all these [luxury stores] opening up throughout China.
Watch the Discussion on Emerging Markets
Diversification does not protect an investor from market risks and does not assure a profit. The interview references the investment theory of an investment as insurance against a separate market event that could negatively affect performance of an investment. The reference does not guarantee performance or a safeguard from loss of principal by investing in that asset. Beta is a measure of the volatility, or systematic risk, of a security or a portfolio in comparison to the market as a whole. Holdings in the Global Resources Fund, Gold & Precious Metals Fund and World Precious Minerals Fund as a percentage of net assets as of December 31, 2009: Chevron (Global Resources Fund 3.69%), Conoco-Phillips 0.00%, Exxon 0.00%, San Juan Basin Royalty Trust 0.00%, Randgold Resources (Gold and Precious Metals Fund 8.30%, World Precious Minerals Fund 8.14%, Global Resources Fund 1.92%), Royal Gold (Gold and Precious Metals Fund 3.52%, World Precious Minerals Fund 1.14%), Franco Nevada (Gold and Precious Metals Fund 0.34%, World Precious Minerals Fund 0.16%, Global Resources Fund 0.04%), LVMH Moët Hennessy Louis Vuitton SA 0% #10-180
Enthusiasm for Emerging Europe
March 05, 2010
Asia’s rapid growth hogs the emerging-markets spotlight, but Russia and the other countries of Emerging Europe (EE) also deserve some attention.
For starters, EE economies have tight fiscal policies and are carrying far less debt than many developed economies, both positives for sustained economic growth.
In the chart above, the best place to be is in the southeast quadrant, and that’s where EE nations are clumped. Russia’s debt position is minimal and there is ample strength in the consumer sector going forward. In January 2010, wages were up 11 percent from a year ago to 19,000 rubles per month. This has kept domestic consumption levels around 65 percent—on par with Brazil and above both China (30 percent) and India (57 percent).
In addition, Russia’s oil production—the country’s main profit center—came through the crisis more robust than many expected, even surpassing Saudi Arabia in terms of production.
But Russia is looking beyond oil and gas. In February, Time magazine reported that President Dmitri Medvedev has ambitious plans to create a high-tech haven where geniuses can think up world-changing inventions.
The intellectual capital is there. Despite years of exodus of scientists and engineers from the Soviet bloc during the 1990s, the chart above from Dr. Marc Faber shows the combined number of researchers in Russia and its former satellite states in Emerging Europe is not far behind the United States and China and is many times ahead of Brazil and India.
A Green Oasis in the Desert
March 03, 2010
Dubai has created islands shaped like palm fronds, the world’s tallest building and even indoor snow skiing in the desert. Neighboring Abu Dhabi is taking the spirit of innovation even higher by building the world’s first carbon-neutral, zero-waste metropolis.
The eco-friendly city of Masdar is scheduled to be completed in 2016. When finished, the city will have a working capacity of 110,000 people—50,000 residents and 60,000 commuters. The idea is to create an incubator for renewable energy and sustainable technology—a “Silicon Valley for clean, green and alternative energy.”
There will be no cars, buses or other transportation reliant on fossil fuels. Energy to power the 6-square-kilometer city will come from a mixture of solar panels, wind turbines and the largest hydrogen power station in the world.
All together, these will amount to about 130 megawatts of power, about 20 percent less than a conventional city of the same size, according to a report in ENI’s Oil magazine.
Abu Dhabi’s government has already contributed $22 billion to the project and it hopes to attract investment from foreign governments and multinational firms as well.
Last August, Masdar signed a deal with German chemical company BASF to provide construction materials, and just this week the head of the Abu Dhabi Future Energy Co. announced plans for a “Korean Cluster” within Masdar that will be home to South Korean companies, universities and facilities.
Building a fossil-fuel-free city in Abu Dhabi, the world’s fifth largest oil and gas producer, may seem counterintuitive, but it makes a lot of sense. Masdar is a key part of the emirate’s long-term strategy to diversify its economy – that’s the same path Dubai started down several decades ago when it became clear that its oil wasn’t going to last forever.
None of U.S. Global Investors family of funds held any of the securities mentioned in this article as of December 31, 2009. #10-150
Net Asset Value
as of 03/10/2010
- Global Resources Fund
PSPFX $9.25 +0.07 - Gold and Precious Metals Fund
USERX $15.08 -0.12 - World Precious Minerals Fund
UNWPX $17.54 -0.09 - China Region Fund
USCOX $8.45 +0.03 - Eastern European Fund
EUROX $9.33 +0.03 - Global Emerging Markets Fund
GEMFX $8.08 +0.04 - Global MegaTrends Fund
MEGAX $8.05 +0.04 - All American Equity Fund
GBTFX $20.04 +0.12 - Holmes Growth Fund
ACBGX $16.14 +0.10 - Tax Free Fund
USUTX $12.32 +0.01 - Near-Term Tax Free Fund
NEARX $2.23 No Change - U.S. Government Securities Savings Fund
UGSXX $1.00 No Change - U.S. Treasury Securities Cash Fund
USTXX $1.00 No Change