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A Warning Shot for Washington
November 12, 2009
I often say that money goes to where it’s treated best, and a Bloomberg News story this week shows that I’m not the only one who believes that.
The CEO of Emerson Electric, which makes a wide range of industrial and technology products, says the U.S. government’s plans for greater regulation and higher taxation are pushing his company to move more of its business operations overseas.
David Farr, who heads the $21 billion company, didn’t pull any punches: “Washington is doing everything in their manpower, capability, to destroy U.S. manufacturing.”
And Farr predicts he will have plenty of company in the exodus to China, India and other places “where people want the products and where the governments welcome
you to actually do something… I'm not going to hire anybody in the United States. I'm moving.”
Government policies for peace and prosperity are a key component in determining a country’s growth prospects and attractiveness for investors.
Worries about the unintended consequences of Washington’s policies have been growing – David Farr’s blunt assessment speaks for those concerned about the risks of governmental overreaching.
By clicking the link, you will be directed to Bloomberg.com. 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. None of U.S. Global Investors family of funds held any of the securities mentioned in this article as of 9-30-09. #09-798
In Praise of Emerging Markets
October 05, 2009
This commentary is from John Derrick, U.S. Global Investors’ director of research.
If you believe now is a good time to invest in U.S. stocks, emerging markets may offer even more opportunity.
We believe global growth is the most powerful investment theme now and for the foreseeable future. You can see this playing out as countries like China, India and Brazil grow in economic stature. As we saw in Pittsburgh last week, the G-7 is being supplanted by the more inclusive G-20 when it comes to global economic decision-making.
Emerging market stocks were hit especially hard during the financial crisis but have been among the best performers during the rebound. We are currently in the midst of a synchronized global recovery, and with aggressive government stimulus, strong balance sheets and an ever-growing share of global GDP, emerging markets are likely to outperform the developed markets due to strong domestic consumption and forward-looking infrastructure investments.
The chart below from Goldman Sachs on consumer spending illustrates that point.
Goldman estimates that consumer spending in China will increase by about 10 percent in 2010, while India and Brazil will be in the 4 percent to 6 percent range. At the same time, negative growth is expected in Spain, Britain and Italy, and the forecast for the United States is flat. Industrial production in emerging markets has recovered to roughly where it was when the recession began; in developed markets, IP is still down nearly 20 percent.
This second chart, also from Goldman Sachs, compares the operating margins in developed and emerging markets for the companies in Europe’s Dow Jones Stoxx 600 Index. The analysis going back to the early 1990s found that the emerging-market operations of these companies have consistently yielded higher margins, and oftentimes the spreads have been significant.
U.S. Global Investors recently hosted a global outlook webcast that featured Dr. Marc Faber, the well-known investor based in Hong Kong. In the course of that webcast, Dr. Faber addressed the developed-versus-emerging issue:
If you look at the next 10 to 20 years in the West, I don’t see how the lifestyle of the average person will improve meaningfully. On the other hand, if you look at a country like Vietnam, they have a GDP per capita annually of $800 which may go to $3,000 over the next 15-20 years.
The same is true for China and India. You suddenly have a middle class of 230 million people in India who will be buying cars like the $2,500 Nano and other goods.
Once a family moves from the bicycle to the motorcycle, it’s an improvement in their standard of living. But when you move to the car and drive your children to school in your car, it’s a huge increase in your standard of living and your social class.
Global growth has been a tremendous benefit for commodities, with the key driver being strong demand from China. And as we pointed out in a recent webcast focused on China, that use of commodities is less to fuel export growth and more to satisfy domestic demand as income levels rise. Increasing demand for commodities and the corresponding rise in prices has positive knock-on effects for much of the developing world.
The increasing importance of emerging countries in the world order also argues for their currencies to strengthen relative to the dollar. International stock markets outperformed the U.S. market during the 1970s and much of the 1980s, with much of that outperformance relating to relative currency strength.
A continuation of the dollar’s decline in the face of slow growth and yawning budget deficits – nearly $11 trillion between 2009 and 2019, according to White House estimates – would provide a significant tailwind for globally-minded investors.
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. The Dow Jones STOXX 600 Index is an index of 600 stocks representing large-, mid- and small-capitalization companies in the developed countries of Europe.
Weak Dollar a Plus for Emerging Markets
July 23, 2009
Portfolio manager Romeo Dator appeared on CNBC’s “Closing Bell” this week to discuss second-quarter earnings reports. Romeo explained to host Maria Bartiromo why investors need to keep their eye on emerging markets.
“I think a well-balanced portfolio should include emerging markets because I think the dollar will continue to be weak over the longer-term, and I think that really would benefit those markets. They are also going to be growing much faster than the U.S., so I think you have double catalysts there for investment.”
The following securities mentioned in the interview were held by one or more of U.S. Global Investors family of funds as of 6/30/09: Freeport-MacMoRan Copper & Gold Inc. 09-499
In Search of Promising Gold Prospects
June 23, 2009
U.S. Global Investors travels the world in search of new investment opportunities in the natural resources and emerging markets sectors. Often that travel is to remote provinces that also can present physical and political dangers. Jayant Bhandari, a U.S. Global consultant, recently visited gold projects deep in the interior of Colombia. Here’s his dispatch, along with photos.
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We visited Ventana Gold’s La Bodega project, which is a short helicopter ride from the city of Bucaramanga in the eastern interior of Colombia, not far from the border with Venezuela.
La Bodega is still an early stage project, but it has released some drill results that have attracted some attention. Adjacent to La Bodega is Greystar Resources’ Angostura project, which has measured and indicated resources of more than 10 million ounces of gold and 50 million ounces of silver, plus an inferred resource of another 3 million-plus ounces of gold.
Gold mining in Colombia has a history going back nearly five centuries, and the country is one of the world’s top producers. According to the World Gold Council, Colombia produced 40 tonnes of gold in 2007 (18th in the world), double its output in 2002.
In Bucaramanga, we were escorted by private security and the army provided protection when we were at the camp site of La Bodega. While the private security was an attempt to be extra safe, it was obvious that the security has improved very significantly. Those who have been to Colombia on earlier occasions attest to the fact that there has been a huge improvement in the security, as well as in the economic and social situation.
The bad stories of the past have still not brought the tourists back to the beautiful capital city of Bogota, where we needed no security and could walk around freely.
Alvaro Uribe, Colombia's pro-business and pro-American president, is currently serving his second four-year term, and a constitutional referendum effort is under way to allow him to stay for a third term.
During Uribe’s presidency, the Revolutionary Armed Forces of Colombia (FARC) and other armed rebel groups have suffered a series of military defeats. Polls consistently show him as very popular—his job approval rating as of last month was 68 percent. It had been as high as 91 percent in June 2008, after a military operation freed 15 high-profile hostages.
Uribe gives very high importance to creating an investment climate so as to create fiscal resources to invest in the welfare of the people and to eliminate social injustices. He has also sparked some controversy -- the army has been blamed for human rights abuses and his attempt to change the constitution to run for a third term is a hot topic.
Overall, however, we returned with a positive opinion of the situation in Colombia.
The following securities mentioned in the article were held by one or more of U.S. Global Investors’ clients as of 3/31/09: Greystar Resources, Ventana Gold. 09-431
More Momentum Against the Dollar
June 16, 2009
The four largest emerging nations are meeting deep in the heart of Russia this week. It’s interesting to note that the president of Iran—accused by many of his angry countrymen of rigging his re-election—made an appearance at the gathering.
It’s equally interesting to note that the United States was not invited.
What to do about the dollar is a key item on the agenda for the meeting among Brazil, Russia, India and China—collectively known as the BRIC nations.
Russia and China have both said publicly that they want to change the dollar’s role as the globe’s reserve currency. The BRICs have built up huge surpluses of dollars and Treasury securities whose value has been in steady decline for years now. The trillions of dollars in economic stimulus coming out of Washington threaten to erode the dollar’s value even more.
Russian officials say the world would be better off with a basket of currencies that includes the Chinese yuan, the Russia ruble and gold. Today a Bloomberg story says the four BRIC countries may set up a partnership to invest in each other by buying each other’s bonds and currencies.
Analysts say such a system would work on a relatively small scale and not right away, but I think that misses the bigger point. Momentum is moving against the dollar, and it’s hard to see now how it will move back. This uncertainty stands to be a positive for gold, oil and commodities.
The BRICs represent 40 percent of the world’s population, and their economies are growing at a much faster clip than the developed nations.
As the economic gap narrows relative to the U.S., Europe and Japan, the BRICs will have a greater say in making the important decisions, such as the future structure of the world’s main reserve currency. Their meeting this week makes clear these emerging giants will make sure they are heard.
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Net Asset Value
as of 11/20/2009
- Global Resources Fund
PSPFX $8.53 -0.06 - Gold and Precious Metals Fund
USERX $16.05 -0.08 - World Precious Minerals Fund
UNWPX $17.97 -0.02 - China Region Fund
USCOX $8.24 No Change - Eastern European Fund
EUROX $8.97 -0.10 - Global Emerging Markets Fund
GEMFX $7.94 -0.02 - Global MegaTrends Fund
MEGAX $7.94 -0.04 - All American Equity Fund
GBTFX $19.21 -0.10 - Holmes Growth Fund
ACBGX $15.12 -0.06 - Tax Free Fund
USUTX $12.24 +0.01 - Near-Term Tax Free Fund
NEARX $2.22 No Change - U.S. Government Securities Savings Fund
UGSXX $1.00 No Change - U.S. Treasury Securities Cash Fund
USTXX $1.00 No Change