The world watched in awe as American swimmer Michael Phelps became the most decorated Olympian of all time. I’ve read he’s been training in the pool for an average of 6 hours a day, 6 days per week, which equates to about 30,000 hours since age 13 and about 10,000 calories burned during a training day. It’s inspiring to see the incredible results of his tremendous sacrifice and commitment.

Investing in global markets requires the same sort of stamina, especially at times like this week, when the month’s reading on the manufacturing industry was not encouraging. The J.P. Morgan Global Manufacturing PMI of 48.4 for July was the lowest since June 2009.

However, I believe there are encouraging pockets of strength to energize and inspire investors.

For example, we’re coming up on the anniversary of the first stimulus move that kicked off the global easing cycle. On August 31, 2011, Brazil unexpectedly cut rates by 50 basis points, and since then, ISI says 228 stimulative monetary and fiscal policy moves have been initiated across several countries, including the Philippines, China, France, and Colombia.

In June and July alone, there were nearly 70 moves—the most since the world began this massive easing.

Generally, by the time central banks make a fiscal or monetary easing move, economic deterioration has already occurred. Even with these moves, it still takes several months for the stimulative measures to take effect and work their way through.

But while the world wades in the shallow end of the pool waiting for the economy to warm up, Asia has taken a deep dive into the energy space as they’ve recently announced acquisitions of Canadian resources companies.

In my presentations, I’ve discussed how resources companies have significantly underperformed their underlying commodities. During 2009 and most of 2010, the performance between oil and the S&P 500 Oil & Gas Exploration and Production Index was closely correlated. By the middle of 2011, oil and oil stocks started to separate, with crude continuing to rise while stocks deteriorated. Even with the recent drop in oil prices, oil stocks have continued to lag.

I’ve also discussed the strikingly similar trend occurring between gold and gold stocks. There’s been a spectacular pop in gold stocks recently, but it hasn’t been enough to catch up to gold’s performance.

The disparities mean that the cheapest resources are not found in the ground—they’re listed, and it’s been confirmed by recent energy company acquisitions.

Chinese oil company CNOOC put in a bid of $15 billion to purchase Canada’s Nexen. This was at a 61 percent premium to Nexen’s share price on July 20, according to Bloomberg. As you can see below, not only did the takeout announcement close the gap, now the company is outperforming the price of oil.

If CNOOC’s deal is approved, the state-run oil giant gets even bigger, gaining access to significant energy stores in several areas of the world, including Canada, the Gulf of Mexico, Colombia and West Africa, as shown below.

With a rapidly growing middle class and rising urbanization, Chinese leaders know they need to fill their country’s tremendous energy demands and are continually finding innovative ways to keep their country powered. CNOOC’s acquisition is one way China continues to acquire not only the resources needed to power the country, but also the technological innovations that come from countries with free markets and lower barriers to entry. According to The New York Times, China “has been garnering advanced production technologies to better draw oil and gas from nontraditional areas like deepwater fields and hardened rock formations.”

The other announcement came from Malaysia’s state-owned and natural-gas giant Petronas, which will purchase Canada’s Progress Energy Resources Corp. Petronas is one of the largest producers and shippers of supercooled LNG fuel in the world. According to the Vancouver Sun, the company is “anxious to increase its market share in Asia, where analysts expect demand to surge 75 percent by the end of the decade.”

After Petronas’ original bid was announced, Progress increased 74 percent—a record gain for the company, says Bloomberg. As shown below, Progress now dramatically outperforms the underlying commodity.

Ready to be a Buyer like Asia?
If you’re contrarian investor, there may be an additional reason to jump into the market today. According to research from J.P. Morgan, institutional investors have become extremely negative, as hedge funds “essentially short the market,” meaning that their expectation is that stocks will fall. 

J.P. Morgan looked at the rolling 21-day beta of macro fund returns compared to the S&P 500 Index returns and found that the ratio is at an extreme level of -0.26. Research shows that the last two times the ratio fell this low—in September 2010 and February 2012—stocks rallied. In 2010, the S&P 500 climbed 26 percent in five months; in 2012, stocks rose 8 percent in two months.

These signs the market is sending out make it an especially attractive time to “mine” for investment opportunity. In July, we began to see energy stocks and oil get recharged, as the energy sector in the S&P 500 was the second best performer, increasing 4.17 percent and crude oil rose 3.68 percent. Unlike the start of an Olympic race, in investing, there isn’t a signal sounded to let you know when to dive off the starting block into the markets. Just make sure your portfolio is poised to participate in the race for resources.

All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor.

The J.P. Morgan Global Purchasing Manager’s Index is an indicator of the economic health of the global manufacturing sector. The PMI index is based on five major indicators: new orders, inventory levels, production, supplier deliveries and the employment environment. The S&P 500 Oil & Gas Exploration & Production Index is a capitalization-weighted Index. The index is comprised of six stocks whose primary function is exploring for natural gas and oil resources on land or at sea. The NYSE Arca Gold Miners Index is a modified market capitalization weighted index comprised of publicly traded companies involved primarily in the mining for gold and silver. The S&P 500 Stock Index is a widely recognized capitalization-weighted index of 500 common stock prices in U.S. companies.

The following securities mentioned were held by one or more of U.S. Global Investors Funds as of 6/30/12: CNOOC, Progress Energy.

KPMG recently published Infrastructure 100: World Cities Edition which showcases the greatest infrastructure projects around the globe. The 100-page publication covers nearly every continent with projects in developed markets including Canada, the U.S., the U.K. and Australia to those in emerging markets such as Brazil, India, Mexico and Turkey.

The focus of the report is to highlight education, health, recycling, waste management, and water solutions to promote better urban living. About half of the world’s population is living in a city someplace on the globe and this number is only set to rise. However, the challenges that cities face are not insurmountable: “All around the world, we see inspirational and innovative examples of projects that are sure to transform not only the urban setting, but also the way the world’s urban population interact with their infrastructure, their governments, their cities and the environment,” says KPMG.

The report highlights too many projects to list here, including the infrastructure for the World Cup and the Olympics that is transforming Brazil, the Sino-Singapore Tianjin Eco City that is collaboratively being developed by China and Singapore, and the Kartal Pendik Project in Turkey.

Download your copy of the report now.

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.

It was an exciting and educational week. I was in Vancouver at the Agora Financial Investment Symposium speaking to hundreds of investors who are eager to learn how to grow and protect their wealth. This year’s theme, “Innovate or Die,” fit well with my presentation, as the conference challenged attendees to adapt their investment strategies just as empires and enterprises adjust to changing circumstances.

When I wasn’t behind the podium, I sat with the audience, soaking up new ideas from speakers, including Gloom Boom & Doom Editor Marc Faber, historian Niall Ferguson and Editor of Outstanding Investments Byron King, who surprised me and challenged my current way of thinking.

Back at the office, our analysts and portfolio managers continue their daily meetings as always to discuss and digest the mountains of research that cross our desks each day. We question what we read, analyze statistics and hypothesize on what we see happening across the global economy. As much as emotions and biases take a role in investing, our goal is to make decisions not based on groupthink that discourages creativity, but founded on a collective wisdom that encourages critical evaluation of the economy and markets.

Global investors constantly need to be watchful of individual biases, impaired thinking and emotional reactions that can have an adverse effect on a portfolio. That’s why we created this weekly Investor Alert which thousands of readers have come to rely on. One of our values at U.S. Global Investors is to always be curious to learn and improve, and the Investor Alert was borne from a belief that shareholders want to understand the very subtle nuances of biases and misconceptions.

My presentation attempted to address a few cognitive dissonances I see in the markets these days and I was pleased to have several attendees approach me afterward, remarking how they thought differently after seeing the slides.

See previous presentations and be surprised.

As much as I’d love to share all of the visuals here, in the interest of space, I selected only a few that I believe challenge the paradigms of investing.

1. For all the hype over recent tech initial public offerings, did you know that investors have lost more money in Groupon and Facebook than the entire assets in all of the gold funds? With the endless coverage leading up to Groupon and Facebook’s IPO, the stocks appeared to be positioned to the public as a mainstream investment. However, I believe people were unaware of the risks involved when they purchased shares.

As you can see below, since its price peak on November 4 through July 26, Groupon has lost $15 billion in market capitalization. Facebook has lost even more in dollar value in a shorter amount of time: From its intraday high on May 18 through July 26, the market cap of the company has dropped $34 billion. These losses pale in comparison to all the money invested in gold funds in the U.S. combined.

2. Did you know that the overall market has historically been more volatile than gold? Take a look at the rolling 1-, 3- and 12-month volatility for the S&P 500 Index, Bank of America stock, gold bullion and gold equities. As with any investment, price action over the short term can rise and fall, but what surprises many investors is that gold has had less rolling volatility than the overall market, gold stocks and a big bank stock like Bank of America (BAC). In fact, looking over the past five years, BAC has seen more volatility than gold, the overall market and gold stocks!

3. While Warren Buffett bashed gold, did you know that Berkshire Hathaway has underperformed the metal over the last 10 years? Gold has been on an incredible bull run over the past decade, and while Berkshire Hathaway kept pace for the first six years, it has struggled to maintain gold’s rise since 2006. In his last shareholder letter, Buffett dismissed gold, comparing the rise of the yellow metal to the tulip mania in the 1600s and claiming that gold only “enjoys maximum popularity at peaks of fear.”

As long as I’ve been in this business, there have been naysayers who question the inclusion of gold in portfolios. However, because the precious metal typically is not highly correlated with other financial assets, holding a small allocation—5 to 10 percent—in a traditional portfolio of stocks and bonds has historically added diversification and reduced volatility.

4. In today’s low yield environment, did you know that inflation causes investors of Treasuries to lose money? Treasuries are seen as a “safe haven” investment, but as of the middle of July, the 10-Year Treasury had fallen to less than 1.5 percent. Yet inflation burns off at a rate of 1.7 percent. This leaves investors with a loss of about 0.2 percent. I believe better opportunities exist.

As I’ve discussed recently, there are plenty of dividend-paying resources stocks with yields much higher than the 10-year Treasury, as well as municipal bond funds that have a higher 30-day SEC yield on a tax-equivalent basis than long-term Treasuries.

Always Be Surprised
Among the millions of people around the world who will watch London’s Olympics, many will stay glued to their flat screens to see firsthand the element of surprise. We want to see the rising star who was considered the underdog, the athlete who takes a record number of gold medals or the team that pulls off an unexpected win. These are memorable moments in the making, like track and field star Jesse Owens, who changed history when he overcame adversity and infuriated the Nazis when he won four gold medals during the 1936 Games. Just like the Olympics, I encourage investors to always stay curious and watchful because you never know where the market’s opportunities will be.

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. 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.

The following securities mentioned were held by one or more of U.S. Global Investors Funds as of 6/30/12: Market Vectors Gold Miners ETF.