- November 11, 2009
- Why the Fall of the Wall Meant So Much
Twenty years ago this week, the Berlin Wall fell and in doing so, set off a string of momentous events that in short order saw the reunification of Germany, the collapse of the Soviet Union, and freedoms and democracy spread across a long-oppressed part of the world.Few events in modern history have had such a significant impact on the lives of so many people, but momentum for the wall’s fall began years earlier.
A member of our investment team who grew up in Poland points out the important role played by Polish leader Lech Walesa, the shipyard electrician who led the Solidarity labor movement that drew support from around the world.
Solidarity’s success in creating the first free trade union behind the Iron Curtain weakened the region’s Communist governments and won Walesa the Nobel Peace Prize. Walesa, later Poland’s first post-Communist president, was in Berlin this week to tip over the first in a series of artistic dominos representing pivotal events from that time.
A member of our team who grew up in Azerbaijan during the Soviet era describes the Berlin Wall as the line in the sand for the Soviets. Once it was gone, it was a natural next step for the former Soviet republics to pursue their own independence.
Prior to the wall’s fall, defiance of Moscow was rare in the Soviet republics, but that changed quickly. By the early 1990s, the Soviet Union was no more – an outcome that few would have believed possible just a couple of years earlier.
As global investors, we watch government policies for peace and prosperity as part of our investment process. The dramatic changes in the former Soviet bloc, for example, led us to create our Eastern European Fund (EUROX) in 1997 – this was one of the first funds focusing on this region. Having a diverse investment team is a tremendous asset in helping us to spot opportunities arising from important global events.
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.
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. 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 Eastern European Fund invests more than 25% of its investments in companies principally engaged in the oil & gas or banking industries. The risk of concentrating investments in this group of industries will make the fund more susceptible to risk in these industries than funds which do not concentrate their investments in an industry and may make the fund’s performance more volatile. #09-795
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- October 27, 2009
- Britain’s Spy in the Sky
Ever feel like somebody’s watching you? If you’ve traveled to the UK recently, chances are somebody has.An article from Sunday’s New York Times: “Britons Weary of Surveillance in Minor Cases” details some troubling surveillance tactics being used in Britain.
According to London’s Evening Standard, more than 10,000 cameras have been set up around the city at a cost of $326 million.
These cameras are being used to monitor comings and goings along the streets, and to help solve a range of crimes – from pickpocketing and loan-sharking to failing to clean up after a pet.
A controversial law enacted in 2000 allows the authorities to install the cameras. The costs are tangible, both in dollar terms and loss of privacy, but the benefit is less clear: The parts of London with the most cameras have a below-average rate of solving crimes, the Evening Standard says.
Read “Britons Weary of Surveillance in Minor Cases”
All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor.
By clicking the link in this article, you will be redirected 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. #09-749
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- September 23, 2009
- Russia’s Mixed Bag Recovery
Russian consumer demand continued to fall during August. Retail sales were down 9.6 percent and investment demand fell more than 19 percent year-over-year, according to a recent report from UniCredit.The data show further deterioration and raise the likelihood that the Central Bank of Russia will continue to support the economy through monetary easing, UniCredit says.
It’s really a mixed bag for Russia when evaluating data points. Russia’s unemployment rate is at an eight-year high of 8.7 percent, but that’s a full percentage point better than the United States’ unemployment rate of 9.7 percent in August.
Also, Russia’s economy underwent waves of industrialization during the 1930s and 1950s, which puts Russia well ahead of China and India in terms of labor productivity when the global economy ramps up again. However, long-term demographics show an aging population with declining life expectancy which could affect growth five or ten years down the road.
It’s likely an economic recovery in Russia will take some time. GDP growth is down 10.2 percent year-over-year while analysts are expecting a Q409 incremental growth of just 1.5 percent.
Russia’s biggest prospect for economic growth comes from beyond its borders. With an unrivaled amount of reserves of a number of important industrial resources, Russia’s ability to export these resources will likely chart its course of recovery.
It’s important to watch how the ruble performs during periods of commodity strength. As commodity exporters in Russia receive dollars and convert them to rubles, the local currency generally appreciates, lifting equities.
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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- August 10, 2009
- The Battle of the “Bears”
If I told you that an investment in California was riskier than Russia, would that surprise you?
Well according to the current prices for 10-year credit default swaps, Russia is less likely to default on its debt than the state of California.
Credit default swaps are basically credit insurance. As the likelihood that a debtor will default on its debt narrows, so does the cost to insure that debt.
As the chart below shows, it costs 278 basis points of the principal amount to insure State of California debt and 268 basis points to insure sovereign Russian Federation debt.
According to Bloomberg, the cost of credit swaps for 45 developing countries are down almost eight percent in the past five months and this week marks the first time ever the cost of debt for emerging nations is less than their industrialized counterparts.
While developed nations are footing the bill for a bailout of the global financial system the International Monetary Fund (IMF) says could reach $10 trillion, the BRICs (Brazil, Russia, India, China) have accumulated $3 trillion in reserves—43 percent of the worldwide total.
The developing world has learned from past crises and adapted, while California is really just now experiencing and struggling through a significant financial crisis of its own, issuing IOUs, raising taxes and slashing spending to plug a $60 billion deficit. California may be a good proxy for much of the developed world and may be a sign that a significant shift is taking place in the current world order.
This is a very interesting development and should force investors to rethink preconceived notions of risk.
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- June 10, 2009
- Signs of Recovery in Russia
Tim Steinle, co-manager of the Eastern European Fund (EUROX), attended the International Economic Forum in St. Petersburg, Russia last week and sent back some observations to our investment team.On Russian Steel: Despite the recent appreciation of the ruble, Russian steelmakers are still some of the lowest cost producers. Russian steelmakers are facing stiffer competition from other Eastern European countries like Turkey and the Ukraine. It’s possible only a third of Russian steel exports to China are consumed there while the rest is either stockpiled or distributed throughout Asia.
On Russian Banks: Non-performing loans are still in the single digits in Russia and restructured loans make up about 20 percent of all Russian loans. However, a large portion of these loans were restructured to convert dollar-denominated loans into ruble-denominated ones.
On Shipping in Russia: Often a good barometer of economic activity, the shipping industry in Russia is struggling. Export volume is down 20 percent while domestic shipping has been hit even harder—down 50 percent. One industry executive, responding to a question on “green shoots,” said they’ve not seen any meaningful pickup in demand.
One of the highlights of the conference was President Dimitry Medvedev’s keynote address, which had several key takeaways:
- Protectionism in a global economy internalizes problems—it doesn’t solve them
- Tax increases will slow global economic growth
- Troubled banks can be recapitalized with government funds. Medvedev rejects the idea of a “bad bank” holding all the toxic assets
- A new reserve currency is needed that relies less on the dollar.
Despite the speech, which attracted worldwide press coverage, Medvedev remains overshadowed by his predecessor, Vladimir Putin.
That didn’t change this week—while Medvedev was in St. Petersburg, Putin was being hailed for humiliating a billionaire industrialist on television and ordering him to pay back wages to his factory workers. Reuters quoted a top diplomat as saying that “Medvedev is up in the clouds and Putin is running the show.”
Please consider carefully the 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.
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 Eastern European Fund invests more than 25% of its investments in companies principally engaged in the oil & gas or banking industries. The risk of concentrating investments in this group of industries will make the fund more susceptible to risk in these industries than funds which do not concentrate their investments in an industry and may make the fund’s performance more volatile. All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor. 09-383
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