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Gold is the Decade’s Best
December 28, 2009
Happy holidays wishes to all, with a special season’s greetings to the permanent gold skeptics.
The decade that ends Thursday is on track to be the worst in recorded history for the U.S. stock market – worse than all of the many boom-and-bust cycles of the 19th century, worse than the Great Depression-era 1930s, worse than the recession-plagued 1970s.
The S&P 500 opened the decade at 1,469.25 on January 3, 2000. When the market closed on Christmas Eve, the S&P 500 stood at 1,125.46 – with four trading days left in the decade, the index’s annual performance over that span is negative 2.6 percent. The Dow Jones Industrials has lost about 1 percent per year over the same period, and the Nasdaq Composite is down a whopping 5.9 percent annually. When adjusted for inflation, the 10-year returns for these indices are even lower.
Meanwhile, what about gold?
The chart above from Bloomberg tells the story – a $100 investment in gold when the market opened on January 3, 2000, was worth about $380 as of this week (data through December 21) – that’s a total return of 280 percent and an annualized return of 14.3 percent. Gold stocks (as measured by the XAU Index) have also had a good decade, climbing 9.4 percent annually.
Commodities (as measured by the S&P GSCI Enhanced Total Return Index) posted average gains of 13.6 percent per year over the period, driven mostly by rapid economic growth in Asia and elsewhere in the developing world.
There are many commentators out there who see no value in gold and who denounce it as an investment at every opportunity. They are certainly entitled to their opinions, but it’s hard to argue with the numbers over the past 10 years – investors on average would have been better off with a gold allocation than having no exposure.
We consider gold a legitimate asset class, and for that reason, we consistently suggest that investors consider a maximum 10 percent allocation to gold-related assets – half in bullion or bullion ETFs and the other half in gold equities – and that they rebalance each year to capture the swings.
What the next decade will bring for gold? Who knows. But we do know one thing – those who held gold for the past 10 years will have a happier New Year than those who listened to the perma-skeptics.
All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor. The S&P 500 Stock Index is a widely recognized capitalization-weighted index of 500 common stock prices in U.S. companies. The Dow Jones Industrial Average is a price-weighted average of 30 blue chip stocks that are generally leaders in their industry. The Nasdaq Composite Index is a capitalization-weighted index of all Nasdaq National Market and SmallCap stocks. The S&P GSCI Enhanced Total Return Index reflects the total return available through an unleveraged investment in specific commodity components of the S&P GSCI. The S&P GSCI is an index calculated primarily on a world production-weighted basis and is comprised of the principal physical commodities with active, liquid futures markets. The Philadelphia Stock Exchange Gold and Silver Index (XAU) is a capitalization-weighted index that includes the leading companies involved in the mining of gold and silver.
Gold, precious metals, and precious minerals funds may be susceptible to adverse economic, political or regulatory developments due to concentrating in a single theme. The prices of gold, precious metals, and precious minerals are subject to substantial price fluctuations over short periods of time and may be affected by unpredictedinternational monetary and political policies. We suggest investing no more than 5% to 10% of your portfolio in these sectors. #09-889
China as a Nuclear Power Play
December 14, 2009
By Romeo Dator
Co-manager, China Region Fund (USCOX)
Like all major economies, China is preparing for its energy future to accommodate rapid growth and the movement of more and more Chinese to cities. The foundation of the nation’s electricity generation plan is coal, but with loud calls coming from around the world for China to cut its output of greenhouse gases, a significant portion of new power will be nuclear.
From an investment perspective, this shows massive potential opportunity both in terms of infrastructure and natural resources, including uranium. Some analysts say the price of uranium, while soft now, could double over the next couple of years in recognition of future market tightness.
China’s nuclear capacity is now less than 9,000 megawatts, but the country has more than a dozen more plants either under construction or in the planning stages – according to figures from the brokerage CLSA, the capacity could grow fivefold by 2015. The official target is 40,000 megawatts by 2020.
Such an ambitious program raises the question of how to fuel all of the new plants that China wants to bring online in the next decade. Where will all of the uranium come from to handle this new demand?
China is not alone in its nuclear plans. Two decades of languishing interest in nuclear power after the Three Mile Island and Chernobyl incidents has reversed, and now too many nuclear energy is viewed as a relatively “green” energy with greater cost-benefit potential than solar, wind and other alternatives. Of course, the long-term storage of radioactive waste remains a stubborn obstacle to fuller acceptance of nuclear power.
Earlier this year, the International Atomic Energy Agency (IAEA) projected that global nuclear capacity would grow from about 370,000 megawatts (14 percent of world energy consumption) now to as much as 540,000 megawatts by 2020 and 810,000 megawatts by 2030. In dollar terms, capital expenditure on nuclear plants could total more than $500 billion over the next 20 years.
Roughly 40,000 megawatts of nuclear capacity are now being built on four continents, with China accounting for a quarter of that total, well ahead of #2 Russia and #3 South Korea. The chart below shows that China will be second only to the U.S. in terms of future capacity when projects at all phases are considered.
China has uranium reserves within its borders and it is aggressively lining up supplies in Central Asia, Africa and Australia to make up any shortfall. Government officials in Beijing say that more uranium mines are badly needed to satisfy future global demand for the resource – in China’s case, a Reuters story says the country can supply only a third of the 10,000 metric tons annually required to meet its 2020 nuclear capacity target.
The World Nuclear Association says the world’s measured uranium resources are sufficient to last 80 years at current usage rates, with the largest untapped deposits found in Australia, Kazakhstan, Russia and Canada. But just looking at China makes it clear that usage rates are soon to see a sizable increase. Like other resources, more uranium deposits may be economically viable at higher prices.
Uranium prices shot up to more than $135 per pound in 2007, after the first nuclear power projects began emerging, and are now around $45 per pound after a brisk supply response.
Some analysts see the price falling below $40 as new supplies from Asia and decommissioned Russia weapons come onto the market, but by 2011, price forecasts go up to $80 per pound as demand takes hold as the key price driver.
Romeo Dator is the co-manager of the U.S. Global Investors China Region Fund (USCOX). For more insights and investment research from U.S. Global Investors, visit www.usfunds.com.
Please consider carefully a fund’s investment objectives, risks, charges and expenses. For this and other important information, obtain a fund prospectus by visiting www.usfunds.com or by calling 1-800-US-FUNDS (1-800-873-8637). Read it carefully before investing. Distributed by U.S. Global Brokerage, Inc.
All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor. Foreign and emerging market investing involves special risks such as currency fluctuation and less public disclosure, as well as economic and political risk. By investing in a specific geographic region, a regional fund’s returns and share price may be more volatile than those of a less concentrated portfolio.
The Good, the Bad and the Ugly in Real Time
November 30, 2009
Anyone who has visited New York has probably seen The National Debt Clock, a digital readout of how much the federal government owes its creditors. The speed at which that number grows is daunting.
A more comprehensive monitor can be found online at USDebtClock.org. Not only do you get the total national debt of $12 trillion (and rising), you also get a raft of other key economic trend data for the country and its citizens based on information gathered from reputable sources that include the Census Bureau, Treasury Department, Federal Reserve and the Congressional Budget Office.
On the day before Thanksgiving, I checked this web site in the morning and then again on Friday morning, and I’d like to share a few observations about what happened during these two days.
The Fed printed up more than $10 billion in new money over that period, or more than $200 million per hour. Any wonder why gold remains an attractive asset class and our overseas trading partners are wary of the dollar?
The national debt grew by nearly the same amount, with each taxpayer’s share of that burden going up $65 to $110,781. The federal budget deficit rose by $9 billion, and total unfunded liabilities shot up almost $30 billion to $106.3 trillion, or $345,088 per citizen. We’ve commented in the past on how federal deficits have historically been positive for gold and especially gold equities.
Looking at the largest federal budget outlays: More than $5 billion went out the door for Medicare/Medicaid, $4 billion in Social Security benefits, $3.6 billion for national defense and the war efforts in Iraq and Afghanistan, and more than $2 billion in interest payments on the national debt.
One worthwhile feature of the USDebtClock.org is that it tells a fuller story by making room for good economic news.
Gross domestic product in the United States grew by nearly $200 billion, or $1,600 per worker, and about $40 billion in value was added to the total national assets during the two days.
And we also see evidence that, while the federal government continues to strap on heaps more debt, the citizenry is going in the other direction.
About $4 billion in private debt was paid down – most of that was in mortgages, reflecting the prolonged weakness in housing, but more than $1 billion in personal debt and $700 million in credit card debt went away. Personal savings climbed by more than $1 billion over the two days as Main Street continues deleveraging after years of free spending.
You can get to the U.S. Debt Clock by clicking on the image at the top of this commentary. I encourage you to pay a visit – there aren’t many places where you can get so much useful and important economic information at a single glance.
By clicking the link, you will be directed to USDebtClock.org. U.S. Global Investors does not endorse all information supplied by this website and is not responsible for its content. All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor. #09-827
Dollar in Disarray, China Buys Away
July 27, 2009
This article is from portfolio manager Romeo Dator, who covers China for the U.S. Global Investors investment team.
Since peaking on March 5, the dollar has fallen nearly 12 percent against the trade-weighted U.S. Dollar Index (DXY).
This weakness has coincided with price gains for gold, oil and copper, but several other commodities are starting to break out as well. Cocoa, sugar, cotton and orange juice prices have all jumped recently.
Dollar weakness has been especially bullish for emerging markets.
This chart above shows year-to-date performance of the dollar versus the currencies of the BRIC (Brazil, Russia, India and China) countries. The dollar’s demise has led to large percentage increases for each of the country’s respective markets.
The relationship works like this: Let’s say one dollar equals 10 Brazilian reales and an American investor purchases a share of stock in Brazil for 10 reales, or one dollar. If the dollar depreciates to eight reales per dollar, the investor could sell the share and convert the proceeds back to $1.25. That’s a 25 percent gain based on currency movement only.
A similar performance pattern this year isn’t the only thing China and Brazil have in common. The two countries have formed a strategic relationship over the past couple of years.
As the export market to the U.S. weakened due to the recession, Brazil and China turned to each other to offset the weakness. The reason is simple—China needs commodities and Brazil needs export markets.
In June alone, China’s imports from Brazil reached nearly $3 billion, a 278 percent increase from the low in early January. That’s a dramatic increase but still below the level prior to the global credit crisis. As the global economy continues to improve, we should see this figure rise even further.
China is out making deals across the world. Last week’s BusinessWeek cover story details China’s recent shopping spree which includes a car business, appliances and department stores.
China is flush with cash and 2008’s meltdown has allowed it to purchase assets at bargain-basement prices. As a result, China’s overseas investments grew to $52 billion in 2008, more than double the $26.5 billion the country sent overseas in 2007.
The second reason is China’s looking to diversify away from its massive U.S. Treasury holdings. By purchasing these companies, China is acquiring the expertise needed to move the country up the manufacturing food chain.
If growth in China continues at the level we saw in the second quarter, it’s likely China’s shopping spree is just getting started.
The U.S. Trade Weighted Dollar Index provides a general indication of the international value of the U.S. dollar. The Bovespa Index (IBOV) is a total return index weighted by traded volume and is comprised of the most liquid stocks traded on the Sao Paulo Stock Exchange. The Hang Seng China Enterprises Index is a capitalization-weighted index comprised of state-owned Chinese companies (H-Shares) listed on the Hong Kong Stock Exchange and included in HSMLCI index (Hang Seng Mainland Composite Index). The Mumbai Stock Exchange Sensitive Index (Sensex) is a cap-weighted index. The selection of the index members has been made on the basis of liquidity, depth, and floating-stock-adjustment depth and industry representation. The MICEX Index is the real-time cap-weighted Russian composite index. It comprises 30 most liquid stocks of Russian largest and most developed companies from 10 main economy sectors. The MICEX Index was launched on September 22, 1997, base value 100. The MICEX Index is calculated and disseminated by the MICEX Stock Exchange, the main Russian stock exchange. 09-506
What Nasdaq’s Winning Streak Tells Us
July 24, 2009
All winning streaks eventually come to an end, and today was that day for the Nasdaq.
After posting gains for 12 straight days, its longest streak since 1992, the Nasdaq Composite closed down 0.39 percent.
Before today, the Nasdaq had gained 13 percent since July 7 to reach its high for the year. Over the same period, the Dow and the S&P 500 each rose 11 percent.
If the Nasdaq’s winning streak ends today, what does it mean going forward?
The statistics-minded folks at Bespoke Investment Group have run some numbers and come up with some interesting observations.
They looked at all 20 of the Nasdaq’s winning streaks of at least 11 days going back to 1971 (the longest was 19 straight in August 1979), and then at the weeks that followed.
For the 19 previous instances, one week after the streak ended, the index posted additional gains 14 times. The average post-streak gain was 0.65 percent.
Going out farther in time also yields positive results. Three months after the streak, the Nasdaq was up 13 of the 19 occasions, and the average gain was nearly 3 percent.
In the words of Bespoke, “it appears that once the ‘animal spirits’ are out of the barn, it’s hard to get them back in again.”
Bespoke also crunched some Nasdaq numbers relating to trading volume in companies that were up for the day. They found that for the 10 trading days ending this past Wednesday, the “upside volume” represented about 72 percent of the total volume.
Then they went back and looked at the three previous instances when the 10-day average upside volume was at least 67 percent (two-thirds) of total volume. In all three cases, the Nasdaq was up three months later by an average of 9.7 percent.
The Nasdaq Composite Index is a capitalization-weighted index of all Nasdaq National Market and SmallCap stocks. The S&P 500 Stock Index is a widely recognized capitalization-weighted index of 500 common stock prices in U.S. companies. The Dow Jones Industrial Average is a price-weighted average of 30 blue chip stocks that are generally leaders in their industry. None of U.S. Global Investors family of funds held any of the securities mentioned in this article as of 6/30/09. 09-504
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