- November 15, 2012
- Rediscovering the Golden Beauty of Myanmar
The Shwedagon Pagoda is believed to be the world’s oldest pagoda and the holiest Buddhist shrine in Myanmar. Coated with gold and decorated with more than 4,500 diamonds, the temple is believed to be 2,500 years old, but has been rebuilt many times due to earthquakes. It is said that Myanmar’s people and its monarchs have donated gold to maintain it. Queen Shinsawbu started this custom in the 15th century when she gave her weight in the precious metal.
Now Americans can see this striking structure firsthand, as travel and investment bans to Myanmar have recently been lifted. The country located between India and China has been isolated for nearly a half of a century after a dictatorial military government took control.
The country has also been called “probably the best investment opportunity in the world right now,” by legendary international investor Jim Rogers. In an interview with The Myanmar Times, he compared the country formerly known as Burma to China in the 1970s, when it started opening up to the world. “In 1962, Burma was the richest country in Asia. Then they closed and [now] it is the poorest.”
The road to democracy has been under construction for a long time. In 1988, after General Saw Maung took over and established a new ruling junta, opposition party leader, Aung San Suu Kyi, created the National League for Democracy (NLD) to promote nonviolence and civil obedience. Shortly thereafter, she was placed under house arrest on and off for a total of 15 years.
The former political prisoner has become a “global symbol of progress,” according to the United Nations. Suu Kyi is the daughter of Burma’s independence hero, Aung San, who was assassinated when she was a toddler. She attended Oxford University, is multilingual, well-traveled and, as an op-ed in The New York Times described her, “seems born to lead, and listening to her makes you a little embarrassed for the level of our own current political discourse.”
For her valiant leadership, she was awarded the Nobel Peace Prize in 1991 and the U.S. Congressional Gold Medal in 2008, both of which she has only recently been able to accept in person because of her imprisonment.
In a historic moment this April, the junta ceded power and allowed Aung San Suu Kyi to run for parliament. Suu Kyi’s party was victorious, winning 43 parliamentary seats. Although the NLD is still a minority, this was a key step in the country’s shift toward democracy and freedom.
Now, with the lifting of the travel ban, photographers, tourists and investors are rediscovering the golden beauty of the country. In the most recent Shareholder Report, we feature the Shwedagon Pagoda on the cover to pique the curiosity of investors.
We believe our focus on covering the fascinating aspects of countries, global resources and precious metals has made the magazine one of the best educational resources in the mutual fund industry. For the sixth year in a row, the Shareholder Report was recognized by the Mutual Fund Education Alliance for outstanding investor communications.
The latest issue highlights three reasons to invest in emerging Europe, China’s acquisitions of oil companies and when you should stop buying gold. Call our Shareholder Services team at 1-800-873-8637 to have a printed version of the magazine mailed to you. You can also download a PDF by clicking here.
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- November 12, 2012
- A Portrait of Two Presidents
Last Friday, President Obama addressed the two topics that have been on many equity investors’ minds since election night: the economy and the dreaded “fiscal cliff.” In his speech, he delivered his familiar plan to combine spending cuts with increasing revenue by raising taxes on the wealthiest Americans. That’s “how we did it in the 1990s, when Bill Clinton was president,” says the president.
Clinton’s legacy was forged under a very different global scenario. He took the reigns just after the end of the Cold War in 1991. As the Soviet Union collapsed, we saw the very beginnings of globalization, with the world opening up to capitalist markets. There were lower labor costs around the world, so companies outsourced, encouraging global growth.
With lower military costs, the U.S. was benefitting from a “peace dividend,” allowing President Clinton to reallocate the spending from military purposes to domestic reforms. He deregulated the telecommunications industry, which helped unleash the Internet.
The confluence of global events combined with policymaking that encouraged business expansion and job creation helped Bill Clinton to be able to boast “the lowest unemployment rate in modern times, the lowest inflation in 30 years, the highest home ownership in the country's history, dropping crime rates in many places, and reduced welfare rolls,” according to the White House’s biography of the former leader.
Clinton also declared that “’the era of big government is over.’ He sought legislation to upgrade education, to protect jobs of parents who must care for sick children, to restrict handgun sales, and to strengthen environmental rules,” says the White House.
Over the past four years, we have not seen the same sort of government policies from Washington. The concern from business owners lately has been an issue that I’ve expressed over several months. When questioning whether an Obama win was a negative for equities, Credit Suisse pointed out that there was apprehension around a less business-friendly environment of “big government financed by taxation, more regulation etc.,” such as the additional cost incurred because of Obamacare.
To increase government revenue, it’s proposed that the top tax rates on dividends would increase from 15 percent to 39.6 percent for those earning more than $200,000 a year. He also wants to increase the tax rate on capital gains from 15 percent to 20 percent.
If this happens, Credit Suisse estimates that these tax increases would take about 5 percent off of the fair value of the S&P 500 Index, as “a third of the U.S. equity market is owned by individual investors who earn more than $200K a year.” Rather than reinvesting dividends and capital gains back into the stock market, these investors will be instead handing the money to the government.
Credit Suisse believes that even if a Mitt Romney administration would have been more business-friendly, there are two aspects to a reelection of Obama that equity investors might want to consider: 1) an Obama win means the Federal Reserve will continue to pursue its current policy and 2) a “fiscal cliff” compromise should be easier with an Obama victory compared to “a narrow Republican victory.”
The upcoming debate over the “fiscal cliff” is a new chance for the newly reelected president to show leadership, reach across the partisan table and work out a bipartisan solution. I believe a resolution to this important issue will be positive for markets.
As Credit Suisse says, “It is worth remembering that Clinton was able to do a deal with the Republicans in his second term (with a Republican House and Senate) after the lack of compromise in his first term led to a government shut-down.”
John Derrick, Director of Research, contributed to this commentary.
The S&P 500 Stock Index is a widely recognized capitalization-weighted index of 500 common stock prices in U.S. companies.
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- November 8, 2012
- Chart of the Week: Gold and an Ever-Growing Balance Sheet
While Americans were still submitting their ballots, gold rallied on the possibility of a President Barack Obama reelection. With presidential results confirmed, it appears that Ben Bernanke’s job of hovering over the economy and dropping parachutes of money out of his helicopter is secure.
“Gold could not have asked for a better outcome,” with a second term for Obama, a Democratic Senate and Republican House, says UBS Investment Research. As the research firm explains in its morning note, “the high likelihood of political gridlock up ahead as attention now turns to the fiscal cliff and the debt ceiling certainly presents upside opportunities for gold.”
UBS says the gold market isn’t even pricing in the outcome of the next Federal Open Market Committee meeting in December when the “conclusion of Operation Twist will morph into further quantitative easing.”
Our chart of the week shows the substantial impact of the Federal Reserve’s decision. In a weekly report, Robert Perli of International Strategy and Investment (ISI) projected the enormous growth of the U.S. balance sheet if quantitative easing continues over the next few years.
Currently the Fed is buying mortgage-backed securities at a rate of $40 billion each month. The dashed orange line assumes that if this $40 billion per month continues over the next few years, America’s balance sheet expands to about $4.5 trillion by the end of 2016.
However, the $40 billion was on top of the previous spending spree on Treasury securities. Added together, this means that Ben Bernanke is forking over $85 billion per month through the end of 2013, which “makes a provocative picture,” says Perli. You can see below that if this open-ended spending continues through the end of 2016, the U.S. balance sheet swells to nearly $7 trillion!
In his October 1 speech in Indiana, Bernanke explains his reasoning behind the Fed’s buying spree:
“We expect these purchases to put further downward pressure on longer-term interest rates, including mortgage rates. To underline the Federal Reserve’s commitment to fostering a sustainable economic recovery, we said that we would continue securities purchases and employ other policy tools until the outlook for the job market improves substantially in a context of price stability.”
This chart is only one reason gold investors like me are bullish. Here are other positive dynamics for gold and gold stocks:
- Special Gold Report: What’s Driving Gold Companies
- Blog Post: A Tipping Point for Gold Companies
- Blog Post: How Helicopter Ben Helps Jobs and, Inadvertently, Gold
- Presentation: Why Gold Stocks are Lagging Gold
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- November 7, 2012
- How Should You Invest After the Election Results?
Keith Fitz-Gerald, my special guest during our Post-Election Outlook webcast next Monday, posted a special “election day” commentary for Money Morning readers. In it, he questions whether the U.S. presidential election was “more about lost dreams or a new promise.” Here is an excerpt from his commentary, reminding us that this year’s election “Is Just One Stop on a Troubled Road.”
“…there are a whole slew of things which could keep the markets from making a meaningful break in either direction, not the least of which is earnings.
“Right now, earnings are decelerating around the world and that means investors would be prudent to continue playing defense. My favorite choices remain large global dividend payers with fortress-like balance sheets and a solid record of rewarding shareholders.
“And don’t forget about the 11 states voting for governors today. One hundred percent of them have budget problems that will make national news in the months ahead. That speaks to even more bailouts and conceivably some sort of national policy response, depending on how debt markets adjust.
“Generally speaking, this is not good for equities and okay for bonds; though to be fair, we’re probably a lot closer to a bond market reversal than we are to a further rally.
“Meanwhile, the euro is off again as fear renews over a Eurozone breakup on news that Greece is thrashing about like a hooked fish because both its payment and austerity measures are at risk. I’ve said before that I expect the euro to achieve parity with the dollar before this is over and I see nothing that changes my view at this point.
“Then there’s China. The 18th National Party Congress gets underway Thursday and the world will bear witness to a once-in-a-decade power transition at a time when the Red Dragon is plagued by economic challenges and corruption on a scale that has boggled even the most jaded of insiders.
“Still, the nation is growing and American companies are betting big there. Some, like Yum! Brands (NYSE: YUM), Coca-Cola (NYSE: KO), and McDonalds (NYSE: MCD) are obvious.
“But some like MSD and Best Buy (NYSE: BBY) aren’t. The former, which you may know better as Merck (NYSE: MRK) in the United States, expects 30 percent growth in China over the next 12 months alone and triple that in the next five years. That’s why the company is hiring reps and building a $1.5 billion research facility in Beijing despite slash-and-burn expense reductions in the United States and Europe.
“Despite well-publicized turnaround problems in the United States and a former CEO under investigation for questionable personal conduct, Best Buy has been purchasing profitable Five Star locations in mainland China since 2008, where 1.3 billion potential consumers represent growth, even as the broader nation struggles. Yet, I was just in one of their stores yesterday and I have a hard time imagining they’ll succeed here even if they get growth there.”
Post-Election Outlook: I’m looking forward to Monday’s discussion with Keith. During the webcast, we’ll be talking about the “fiscal cliff,” energy prices and what the next presidential term means for your portfolio.
Join us next Monday at 3 p.m. Eastern Time.
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By clicking the link above, you will be directed to a third-party website. U.S. Global Investors does not endorse all information supplied by this website and is not responsible for its content. The following securities mentioned in the article were held by one or more of U.S. Global Investors Funds as of 9/30/12: Coca-Cola, Best Buy
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- November 5, 2012
- Who Will Lead America Over the Next Four Years?
Americans will be united in heading to the polls Tuesday to determine who they want to be the next president and vice president. After months of experts, news reporters and the candidates inundating us with a barrage of facts and opinions, voters have the last word.
Research finds that historically Americans’ say has been swayed by very recent stock market performance. Last July, I covered the work of Adam Hamilton from Zeal LLC, who analyzed that the market has typically determined whether an incumbent leader wins. He used InvesTech research dating back to 1900 to look at market results covering the two months leading up to the presidential election.
The majority of the time, when stocks rose in September and October, the incumbent party was reelected; when equities dropped, the incumbent typically lost. He discovered that “out of the last 28 presidential elections, this simple indicator has proven correct 25 times. This is an astounding 89 percent success rate!”
This shows that Americans “make political decisions based on how our families are faring economically,” he explained in an October update on this topic. The stock market, as a proxy for the broader U.S. economy, “heavily influences how we cast our ballots.”
However, during September and October of this year, the S&P 500 Index rose 0.40 percent, which makes it too close to call an incumbent win. This “essentially dead flat” result has made the few days leading up to the election “super-important.” Adam says, “We all figured it would be a close race in our heavily-divided country, and the stock markets are certainly exacerbating this with their schizophrenic September-October ride.”
There has also been a close relationship between President Obama’s approval rating from Gallup and the performance of the S&P since he took office. Immediately after Obama took the oath, there appeared to be an inverse correlation between the stock market and the approval rating while the president enjoyed a “honeymoon” period. We “had high hopes his leadership would bolster a rapid economic recovery in America,” says Adam.
However, following the honeymoon, “Americans’ views on the job Obama is doing have been closely tied to the fortunes of our stock markets.” Beginning in mid-2010, as the stock market rose, the approval rating for the president climbed; when the market corrected in 2011, so did the Gallup poll.
What’s interesting is that while the S&P has climbed an outstanding 68 percent over the president’s term, the president’s approval rating sits at only 51 percent as of the end of October 2012. This weak approval has been attributed by several experts to stagnant job growth, a slowing global economy, weak U.S. GDP growth, and a mountain of rules and regulations that have hindered businesses over recent years.
Alan Zafran of Luminous Capital believes that these reasons are why “CEO confidence remains listless, lethargic and dispirited.” According to the YPO Global Pulse Confidence Index, which measures executives’ perspectives on the business climate, leaders’ confidence around the world, except for in Latin America, “fell modestly over the past three months and remains in largely uninspiring territory.” As you can see, a majority of CEOs responded that there would be no change in their businesses’ employee count and fixed investment.
He indicates that the most important reason for a slump in CEO confidence is that “uncertainty relating to America’s tax code and regulatory environment as well as its health care and retirement systems – particularly in the face of our nation’s ‘fiscal cliff’—has stymied many American CEOs’ willingness to add jobs and buy business equity today.”
Zafran concludes his article by calling for “meaningful fiscal action” to get the U.S. economy out of its “financial ditch” and raise the confidence of CEOs. As I often say, it’s not about the political party, it’s the policies.
Regardless of which candidate wins, Goldman Sachs’ research shows that the market is indifferent during the president’s first year. As you can see in the chart below featured on Business Insider’s website, since 1976, the S&P has experienced a median return of 10 percent over the twelve months following the election of both a democrat and a republican.
How is Energy Affected by the Candidates?
If President Obama is reelected, it could be a negative for certain energy companies involved in natural gas fracking, says International Strategy & Investment (ISI). The research firm put together an “Obama Portfolio” which includes sectors such as taxes, defense, discretionary spending, energy and infrastructure. ISI says that companies “highly leveraged to fracking and onshore drilling in the U.S.” could be negatively affected “if regulatory costs are substantially higher in a second Obama term.” Conversely, a Governor Mitt Romney win could be significant for energy companies. In its “Romney Portfolio” ISI’s rationale is that Romney and the GOP “will try to do more to promote traditional forms of energy, including offshore drilling, approving the Keystone pipeline, and exploiting the nation’s coal resources.”
U.S. Global’s Director of Research John Derrick also discussed the impact of energy companies as well as tax policy differences between the two candidates with AdvisorOne. Read the article now.
Join Our Post-Election Outlook Webcast
After casting your ballot, make sure to tune into our post-election webcast where I’ll be discussing the questions that have been on investors’ minds with Money Map Press Investment Strategist Keith Fitz-Gerald. We’ll talk about a variety of issues, including the “fiscal cliff,” the housing recovery and the future of energy prices. Don’t miss it! Add to your calendar today.
The S&P 500 Stock Index is a widely recognized capitalization-weighted index of 500 common stock prices in U.S. companies. All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor.
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