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Another Shot at Infrastructure
September 08, 2010
This week President Obama announced a $50 billion infrastructure plan to improve the nation’s roads, railways and runways over the next six years. The plan also lays out long-term plans for America’s infrastructure by developing an infrastructure bank, expanding environmental sustainability and integrating a high-speed program over the next generation.
The announcement couldn’t come at a better time. Data released last week shows that construction spending fell to a 10-year low in July and the country lost 54,000 jobs in August.
Infrastructure investment can improve both these figures. According to federal figures, every $1 billion invested in infrastructure can create about 35,000 jobs and fuel $6.2 billion in economic activity.
When President Obama took office, one of his first promises was to put Americans to work by repairing crumbling infrastructure.
Roughly $230 billion worth of his economic stimulus plan was allocated to infrastructure, but only about $66 billion had been paid out by mid-August, according to The Wall Street Journal.
Where is the money going? California, hard hit by the recession, currently has 8,000 approved projects valued at $25 billion, while Texas has 3,000 projects ($14.6 billion) and New York has 3,500 projects ($12.7 billion). In all, there are nearly 80,000 infrastructure stimulus projects approved or under way across the U.S., according to Recovery.org.
Measuring the impact of another $50 billion will take some time as the President’s plan is intended to take six years. However, with our nation’s infrastructure investment needs estimated to be over $2 trillion, every little bit counts.
China’s Big Plans
September 07, 2010
"Global" is part of our company name, and we take it seriously. This week two members of our investment team are in Hong Kong for a CLSA conference, another is just back from China, a fourth will be there later this month and I’ve spent a fair bit of time in Colombia in recent months.
This is not leisure travel, but rather a key part of our investment approach – combining the tacit knowledge acquired from breathing the air, eating the food, seeing projects and meeting with companies with the explicit knowledge gained from the research done at our desks in San Antonio.
Much has been said and written about China as a property bubble on the verge of a messy bursting, but there’s another story out there that makes more sense to us based on our own observations and those of others.
For example, a research note from the highly respected ISI Group on Friday: "Soft landing. Inflation is OK. … 3Q2010 might be an upside surprise… The few high-end (housing) speculators are insignificant. Basic demand is strong from the masses who want more and better housing… Lots of talk in the China media that gets passed off as news."
This map from Credit Suisse shows how China’s East Coast-focused economy is aggressively moving westward into the heartland, where production costs are far less expensive.
Vast new regions of the country are being opened up to the dynamic Chinese economic engine – figures shows the fixed-asset investment (FAI) growth rate in some inland provinces at five times the rate of Beijing and Shanghai. FAI is important because it includes the infrastructure that supports the future growth that stands to raise the living standards for many millions of people, and rising FAI is also highly correlated to commodity demand.
China will bring out its 12th Five-Year Plan next month, and Credit Suisse offers an early peek at some of what it expects to see:
- Wage increases to help the consumer sector become a bigger part of the economy;
- New rules to make it easier for rural residents to move to cities in search of opportunity;
- More emphasis on public housing for low-income Chinese;
- Increased investment in alternative energy and incentives to reduce carbon emissions;
- Efforts to diversify the country’s financial sector away from a small number of institutions
The emerging markets growth story being led by China and India remains intact, and this bodes well for gold and commodities. Both countries continue to be focused on spending for infrastructure and to enhance quality of life now while also laying the groundwork for a future of social stability and job opportunities.
India’s GDP accelerated in the second quarter, and China has been performing better than the doomsayers predicted. These two countries – affectionately called "Chindia" – are nearly 40 percent of the world’s population, and they are growing at a much stronger pace than the U.S. or Europe.
Can Gold Go Higher?
September 03, 2010
I’ve done a number of interviews on gold recently and the number one question I get most from reporters is—can gold prices go higher?
My answer is yes.
Short-term, “record gold prices” are a bit of a misnomer. On an inflation-adjusted basis, gold’s real record price would be over $2,300 an ounce.
Looking at our oscillators, gold appears to be far from overbought. The chart shows the 60-day oscillator for gold (yellow) and the U.S. dollar (green) for the past 10 years as of August 31. One standard deviation represents a 7.3 percent move in gold prices.
Despite its recent run, gold was down 0.38 standard deviations as of the end of the month. More importantly, we’re not seeing the huge price spikes that are typical when investments get overheated.
Long-term, I think gold prices could double over the next five years. If this happens, the effect on gold stocks could be tremendous. If gold manages to double over the next five years we could see the values of some miners triple.
This would not take place in a straight line. Investors must be aware of the volatility inherent with these investments. Assuming normal historical volatility, these stocks could up or down 40 percent over any 12-month period.
Standard deviation is a measure of the dispersion of a set of data from its mean. The more spread apart the data, the higher the deviation. Standard deviation is also known as historical volatility.
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.
Net Asset Value
as of 09/08/2010
- Global Resources Fund
PSPFX $8.78 +0.05 - Gold and Precious Metals Fund
USERX $17.44 +0.03 - World Precious Minerals Fund
UNWPX $20.18 -0.01 - China Region Fund
USCOX $8.61 -0.02 - Eastern European Fund
EUROX $9.11 +0.13 - Global Emerging Markets Fund
GEMFX $8.17 +0.08 - Global MegaTrends Fund
MEGAX $7.71 +0.04 - All American Equity Fund
GBTFX $20.02 +0.09 - Holmes Growth Fund
ACBGX $16.04 +0.15 - Tax Free Fund
USUTX $12.58 -0.01 - Near-Term Tax Free Fund
NEARX $2.26 -0.01 - U.S. Government Securities Savings Fund
UGSXX $1.00 No Change - U.S. Treasury Securities Cash Fund
USTXX $1.00 No Change