Share this page with your friends:

Print

Please note: The Frank Talk articles listed below contain historical material. The data provided was current at the time of publication. For current information regarding any of the funds mentioned in these presentations, please visit the appropriate fund performance page.

2020: Gold's Best Year in a Decade; Ethereum Beat Bitcoin; Inflation Higher Than Reported

December 31, 2020

By Frank Holmes
CEO and Chief Investment Officer
U.S. Global Investors

2020: Gold’s Best Year in a Decade; Ethereum Beat Bitcoin; Inflation Higher Than Reported

One of the keys to being a successful investor is making sure you’re getting the right facts. Otherwise, you run the risk of making investment decisions based on poor or faulty information.

The problem is, the media has a major trust issue. Many Americans put very little faith in the accuracy of the “news” they get from newspapers, TV, radio and social media. A Gallup poll in September found that 33% of Americans—a full third—don’t trust the media at all.

This would be distressing in any year, but it’s particularly so during a pandemic and presidential election.

I was curious to see if this distrust was turning up in people’s web searches. My suspicions were confirmed. Google inquiries for “media bias” have historically spiked around elections, but this year, people seemed to be more concerned with being misled than ever before. 

Americans were highly concerned with media bias during the pandemic and 2020 election
click to enlarge

I’m bringing all this up in response to an eye-opening piece this week by Andy Laperriere, head of U.S. policy research at Cornerstone Macro. Andy’s been doing policy analysis for more than 20 years, and he says the level of bias in news sources—those that lean left as well as right—is as high today as it’s ever been in the U.S.

The result is that “there is no common set of basic facts that most people operate from,” Andy says.
So what can we do as investors? Andy stresses that we need to be “intentional about consuming a balanced diet of news coverage.”

That may include going to sources you wouldn’t normally go to.

He rarely watches cable news, calling it “political junk food.” Instead, he prefers the Wall Street Journal. He also likes the editorial pages of the National Review and the Dispatch.

Maybe you agree with Andy, maybe you don’t. Either way, I think it’s constructive to do a regular audit, so to speak, of your preferred news sources. Make it a New Year’s resolution.

I’d be curious to know which news sources you depend on! Send your comments to info@usfunds.com.

Low Inflation in the U.S. Is Still “Fake News”

Speaking of fake news…

Earlier this month, the Bureau of Labor Statistics reported that consumer prices rose at an annual rate of only 1.2% in November. The weakness was driven mostly by energy prices, which are still down from the same time last year due to lower demand.

Other commodities, though—particularly food and building supplies—have soared in price this year, leading many people to wonder where the 1.2% inflation figure is coming from.

Take a look below. In the past six months alone, wheat prices have shot up more than 25%, corn 35%, soybeans 50%, as Chinese grain imports are hitting new record highs. I don’t know about you, but my Amazon food deliveries have gotten substantially more expensive in the past few months, so I have to question inflation being under 2%.  

No inflation? Food and building supplies are up significantly
click to enlarge

The same goes with building supplies, particularly lumber and copper. For the six-month period, lumber prices have increased 275%, as many mills had to close temporarily due to the pandemic.

Copper, meanwhile, is the best-performing base metal of the year, up more than 32%, beating out other metals such as zinc, nickel, tin, aluminum and lead. The red metal, universally found in electrical wiring and building construction, has benefited from global shortages and strong Chinese demand.

The price surge has been a boon to copper producers. Freeport-McMoRan, one of the biggest copper miners in the world, was among the top 10 best performing S&P 500 stocks of 2020, up 100%. (Tesla, which joined the S&P on December 21, was the number one stock of the year, having returned more than 755%.)

Is the consumer price index (CPI) “fake news”? Watch my video by clicking here!

Massive Stimulus, with No End in Sight

Looking ahead to 2021, I anticipate even higher inflation due in large part to easy monetary policy as well as additional government stimulus. Today, the combined balance sheets of the Federal Reserve and European Central Bank (ECB) total a head-spinning $16 trillion. Next year, the two central banks are expected to increase holdings at a combined $240 billion a month, or around $2.88 trillion, according to Evercore ISI’s Ed Hyman.

Federal reserve and European central bank ECB balance sheets
click to enlarge

Then there’s also the $900 billion fiscal stimulus that was just signed into law and the “likely” additional $500 billion in the second quarter of 2021, Ed says.

These programs push up asset prices, from stocks to commodities, and that includes housing. Home prices, as measured by the S&P/Case-Shiller Index, rose to a new all-time high in October, the most recent month of data. At an annual rate of 8.4%, home prices are surging much faster than the headline inflation rate of 1.2%.

Huge wealth effect: Monetary stimulus has pushed up asset prices
click to enlarge

Gold Had Its Best Year in a Decade; Ethereum Beat Bitcoin

Like other hard assets, gold and Bitcoin had a very good 2020 as investors, worried about currency debasement from all the money-printing, sought stores of value. Gold surged over 25%, its best year in a decade. The yellow metal has now ended the year up in 16 of the 20 past years, or 80% of the time.

As for cryptocurrencies, all the attention has been on Bitcoin due to it hitting a new record high of just under $30,000. But don’t overlook Ethereum. The world’s second biggest digital coin actually beat Bitcoin in 2020, by a factor of 2.5.

Ethereum price beat bitcoin in 2020
click to enlarge

These prices have been a tailwind for crypto miners such as HIVE Blockchain Technologies, the only publicly traded firm that mines both Bitcoin and Ethereum. I’m pleased to tell you that HIVE ended the year up an incredible 2,400%. The company remains the most liquid of any listed crypto firm, having traded more than 1.7 billion shares in Canada in 2020, half a billion in the U.S.

Heard the big news about HIVE Blockchain? Read the press release here!

Wishing you health, wealth and wisdom in 2021

Gold Market

Spot gold closed the year at $1,898.02, up $381.0. per ounce, or 25.11%. Gold stocks, as measured by the NYSE Arca Gold Miners Index, ended the year higher by 22.50%. The S&P/TSX Venture Index came in up 51.57 percent. The U.S. Trade-Weighted Dollar fell 3.16%.

Date Event Survey Actual Prior
Dec-22 GDP Annualized QoQ 33.1% 33.4% 33.1%
Dec-22 Conf. Board Consumer Confidence 97.0 88.6 92.9
Dec-23 Initial Jobless Claims 880k 806k 892k
Dec-23 Durable Goods Orders 0.6% 0.9% 1.8%
Dec-23 New Homes Sales 995k 841k 945k
Dec-28 Hong Kong Exports YoY 1.8% 5.6% -1.1%
Dec-31 Initial Jobless Claims 835k 787k 806k
Jan-3 Caxin China PMI Mfg 54.7 -- 54.9
Jan-5 ISM Manufacturing 56.5 -- 57.5
Jan-6 Germany CPI YoY -0.2% -- -0.3%
Jan-6 ADP Employment Change 75k -- 307k
Jan-6 Durable Goods Orders -- -- 0.9%
Jan-7 Eurozone CPI Core YoY 0.2% -- 0.2%
Jan-7 Initial Jobless Claims -- -- 787k

Strengths

  • The best performing precious metal for 2020 was silver, up 47.86% as investment demand and the outlook for more solar power improved. Gold had its biggest annual advance since 2010, up 25.11%, after a tumultuous year that included four straight months of declines before snapping back in December. Bullion hit a new record high in August above $2,000 an ounce as investors feared unprecedented stimulus by central banks globally. The yellow metal finished 2020 up, aided by the U.S dollar’s decline to the lowest since April 2018. How might gold fare in 2021? A weaker dollar and low real interest rates are likely to provide support despite the worldwide vaccine rollout. The Federal Reserve has signaled ultra-easy monetary conditions throughout the next year.

Gold has best year since 2020, ends 2020 with monetary gain
click to enlarge

  • Platinum and palladium saw gains. Palladium hit an all-time high above $2,700 an ounce and ended the year up 26.08%. Demand should continue to remain firm but the push for electric vehicles could be a headwind at some point perhaps.
  • Numerous gold companies saw triple digit gains in 2020. U.S. Global Investors portfolio manager and gold expert Ralph Aldis’ top performers for 2020 include: K92 Mining, up 168.82%; GoGold Resources, up 284.21%; Calibre Mining, up 161.55%; and Metalla Royalty & Streaming Ltd, up 132.59%. Ralph predicts these precious metals companies could perform strongly in 2021: RoxGold, Revival Gold, Magna Gold and Barksdale Resources.

Weaknesses

  • The worst performing precious metal for the year was platinum, still up 10.79 percent.
  • 2020 saw a spike in money flowing into gold-backed ETFs, then an exodus toward the end of the year. Citigroup cut its forecast for net inflows into gold ETFs to just 800 tons for the year, 75 tons less that previously predicted, reports Bloomberg. The bank expects inflows to be 50% lower in 2020 and sees support for gold in the short term at $1,700 an ounce. The largest gold-backed ETF, the SPDR Gold Trust, had its largest monthly outflow since 2017 in November, losing over 50 tons.
  • Gold demand in the world’s second-largest consuming nation was a major weakness in 2020. This year due to coronavirus and weak economic growth, India’s gold jewelry sales fell below last year’s 194 tons to the lowest quarterly numbers since 2008, according to Metals Focus. World Gold Council (WGC) data showed purchases of gold jewelry, coin and bars fell by half from a year earlier in the first nine months through September. India, which also polishes nearly 90% of the world’s rough diamonds, says exports will fall by as much as a quarter in 2020. The Gem & Jewellery Export Promotion Council says supply disruptions and lower demand from the coronavirus could push exports down as much as 25% and that the current slump is worse than that in 2008-2009.

Opportunities

  • Both gold and gold equities had a banner year. The rally in bullion helped miners expand margins and generate record levels of free cash flow, allowing companies to pass on profits to shareholders already, according to Scotiabank analyst Tanya Jakusconek. Ironically, many of the gold mining stocks languished as the second half of the year wore on with gold largely trading sideways after setting a new high earlier in the year. Maybe it’s like the 1970s starting over again? Having a listen to 1970s hit “Ball of Confusion (That’s What the World Is Today)” performed by the Temptations takes a person to today in terms of the same issues that the world was facing coming out of the 1960s. The 70s was a great decade for gold, “and the band played on” as prices marched higher.
  • The 2021 gold bulls are here. Credit Suisse expects another strong year for the precious metal with an average price target of $2,100 per ounce. Goldman Sachs predicts gold at $2,300 next year. The bank is clearly bullish on the metal as it purchased the Perth Mint Physical Gold ETF and renamed it the Goldman Sachs Physical Gold ETF. In a Kitco News outlook survey, 84% of respondents said they see gold over $2,000 an ounce by the end of 2021.
  • Should investors look toward seniors or juniors in 2021? Ralph says “you might get more bang for your buck” with juniors or mid-tier miners. Seniors such as Barrick and Newmont have mostly flat gold production and will need to make acquisitions if they don’t find discoveries themselves, opening up opportunities for smaller players to get bought out. 2020 was largely a drought for M&A, and Ralph expects 2021 and 2022 to see more consolidation.

Threats

  • A rising threat for gold, and other safe-haven assets, is the mainstream adoption of cryptocurrencies. Money has poured into Bitcoin funds and out of gold-backed funds. JPMorgan expects this trend to continue as more institutional investors take positions in cryptocurrencies. The Grayscale Bitcoin Trust has seen inflows of almost $2 billion since October, compared with outflows of $7 billion for ETFs backed by gold, according to JPMorgan. Many investors view bitcoin and cryptos as an alternative to gold as a hedge in their portfolio against equities and other currencies.
  • Gold historically performs well during times of economic and geopolitical uncertainty. The yellow metal soared as COVID-19 spread and sent turmoil through global markets. The metal dropped after news of vaccine progress came out and after several vaccines were approved to fight the virus. Gold also historically moves in the opposite direction of the wider stock market. Should a global economic recovery take place in 2021, it could be a headwind for gold, although a positive for most others.
  • The battle for Venezuela’s gold reserves continued in 2020. A British appeals court ruled in favor of the Venezuelan government of Nicolas Maduro, saying the legal battle over the country’s $1 billion in gold in the Bank of England vaults should be reconsidered. Bloomberg reports the appeals court reversed a lower court ruling that recognized opposition leader Juan Guaido as the interim president. This ruling gives Maduro another chance at getting his hands on the gold, which he would likely sell in order to support the struggling South American nation.

Over bought or over sold? Tracking gold's moves using standard deviation with Frank Holmes - Watch the video

Index Summary

  • The major market indices finished mixed this week. The Dow Jones Industrial Average gained 1.35%. The S&P 500 Stock Index rose 1.49%, while the Nasdaq Composite rose 0.65%. The Russell 2000 small capitalization index lost 1.37% this week.
  • The Hang Seng Composite gained 3.24% this week; while Taiwan was up 3.17% and the KOSPI rose 2.37%.
  • The 10-year Treasury bond yield ended the week essentially flat.

Domestic Economy and Equities

SP 500 Economic Sectors weekly performance
click to enlarge

Strengths

  • The S&P 500 has surged almost 65% since its March low and is on track to finish the year on a positive note as well, reports Forbes. “The economy’s nascent recovery gets much of the credit for the market’s gains, as does a federal stimulus package, massive amounts of liquidity from the Federal Reserve and the rapid development of multiple Covid-19 vaccines,” the article explains. Even ignoring the pandemic for a moment, 2020’s stock market defied expectations.
  • The unprecedented challenges of the pandemic spurred innovations in 2020. Access to telemedicine expanded thanks to rule changes in Medicare and Medicaid allowing patients and doctors to be reimbursed for remote visits. A company called Zoom, which few had heard of before the pandemic, became an instant global brand and enabled work and socialization from home.
  • Tesla was the best performing S&P 500 stock for the year, increasing 742.39%.

Weaknesses

  • February, and the end of the U.S. recession that began in February has not been officially determined by the National Bureau of Economic Research, which is tasked with tracking economic cycles. In fact, about 40% of those who earned less than $40,000 lost their jobs in March. New weekly jobless claims climbed past six million.
  • Due to the COVID-19 lockdowns, many schools were forced to close this year. Not only did this cause a loss of learning temporarily, but it diminished economic opportunities for this generation for the long term, some argue.
  • Occidental Petroleum Corp. was the worst performing S&P 500 stock for the year, decreasing 58%.

Opportunities

  • According to McKinsey, while the winter of 2020/2021 in the Northern Hemisphere will be challenging, we are likely to see mortality rates fall in the second quarter of 2021. Seasonality and associated changes in behavior will begin to work again in our favor in the spring, and the combination of early doses of vaccines targeted to those at highest risk, advances in treatment, expanded use of diagnostics, and better implementation of public-health measures should serve to significantly reduce deaths from COVID-19 in the second quarter.
  • The U.S. manufacturing industry has experienced a lifetime of trauma over the past two decades, but 2020 likely marked the bottom of that long and high-profile decline. The pandemic brought with it the largest cut in industrial earnings on record in the second quarter, driven by the global shutdown. However, looking out to 2021 and beyond, there is more reason for hope in manufacturing than at any time since the 1990s.
  • According to McKinsey, a series of shifts are likely to persist long after COVID-19 is controlled and thus deserve particular attention: In addition to safety, consumers are becoming more focused on digital channels and sustainability issues. Access to micro mobility options—lightweight vehicles such as bicycles, e-scooters, and mopeds—will be important, as will safety and health issues. The pace of technological change will continue to accelerate in all areas, including connectivity, autonomous driving, and urban transport.

Threats

  • This year, the coronavirus has had a devastating impact on economic activity around the world. Global trade has shrunk by 9.2%, according to projections from the World Trade Organization. Policy responses to the pandemic, as well as increasing concerns about national security around the world, could have a lasting effect in shaping—and potentially diminishing—globalization going forward.
  • According to McKinsey’s Global Banking Annual Review, in the months and years to come, the pandemic will present a two-stage problem for banks. First will come severe credit losses, likely through late 2021; almost all banks and banking systems are expected to survive. Then, amid a muted global recovery, banks will face a profound challenge to ongoing operations that may persist beyond 2024.
  • Global debt from emergency COVID-19 spending, especially in developing economies, is exploding. Total debt increased by $15 trillion in 2020 and is expected to reach 365 percent of global GDP by the end of the year. The International Monetary Fund (IMF) has had to disburse pandemic-driven financial aid to eighty-one countries already, and capital flows to low-income countries are projected to drop by $700 billion from 2019 levels in 2020.

Energy and Natural Resources Market

 

Strengths

  • 2020 marked a massive shift toward carbon neutrality. Various oil majors and countries set goals for achieving net zero emissions in the coming decades. China, the world’s biggest source of carbon dioxide, responsible for around 28% of global emissions, pledged in September that it will aim to hit peak emissions before 2030. The nation will aim for carbon neutrality by 2060, according to President Xi Jinping. European oil majors BP and Total aim for net zero by 2050. American oil majors followed suit later in the year with green targets, though less drastic and fast-paced than their European peers.
  • Lumber was the strongest performing commodity in 2020, with gains exceeding 100 percent. Lockdown orders keeping people in their homes spurred home renovations. The virus also drove people to move from crowded cities to less dense urban and farm living, spurring a homebuilding boom. Commodities performed strongly for the year due to a China-led economy recovery boosting demand. Iron ore and steel outperformed on booming Chinese construction and manufacturing demand.
  • One of our biggest successes in natural resource investing in 2020 was the going public transaction of ABAXX Technologies, which offers commodity traders and finance professionals to communicate, trade or hedge commodities.

Weaknesses

  • Crude oil was the big loser of 2020. Oil prices in the U.S. fell negative for the first time in history in April when WTI dropped as low as minus $37 per barrel. Global lockdowns led to a historic plunge in oil demand as people stayed home and air travel came to a screeching halt. Although oil recovered to finish the year around $50 a barrel, oil majors posted record losses.
  • Worst stock for the year? Not to be too general, but if your company was had oil, gas, or coal in its mix, it wasn’t a good year. In August, Exxon Mobile was removed from the Dow Jones Industrial Average after being a member since 1928. In the same month, energy (thanks to oil and gas companies) shrunk to become the lowest-weighted component of the S&P 500 – a big fall from 2008 when it was the component’s second-largest sector.
  • The global pandemic led to major disruptions at mining and production facilities and global shipping. Mines were forced to close in countries that implemented strict lockdowns keeping workers at home. Border closings led to workers trapped on ships for months. A lack of air transportation pushed gold premiums near $150 per ounce. Another round of lockdowns or border closures could lead to further supply disruptions for many commodities.

Opportunities

  • U.S.-listed clean energy stocks had their best year ever, as measured by the WilderHill Clean Energy Index, which was up 206% in 2020. The sector has skyrocketed as investors weigh the prospects of an aggressive green push with Joe Biden’s victory in the U.S. presidential election. Tesla dominates the index, but even if you remove the electric vehicle maker, the industry has a market cap of $760 billion.

U.S.-listed clean energy stocks have best year ever
click to enlarge

  • LNG, the cleanest fossil fuel, could turn around in 2021 after dramatic price swings throughout 2020. The fuel has jumped more than sixfold in Asia since its April low on colder weather, outages at major production hubs and a congestion in global shipping. Bloomberg notes Asian LNG is the best performer among major commodities for the year. Demand for the heating fuel is growing faster than any other fossil fuel as nations look toward cheaper and cleaner alternatives to coal.
  • Platinum could be a big beneficiary of the push toward hydrogen after receiving little attention in 2020 with the rise of clean energy. The precious metal is used in hydrogen fuel cells, which are ideal for commercial transport fleets since it does not require long charging times. Hydrogen burns clean, emitting just water, and could help Europe achieves its goals of becoming climate neutral by 2050. Copper and nickel, both critical to electric batteries, are up 27% and 19%, respectively, for the year while platinum was up just 5%.

Threats

  • 2020 was filled with natural disasters. Wildfires we particularly severe in California and Australia. There was an unprecedented Atlantic hurricane season (they even ran out of names to call them) and several places recorded their hottest temperatures on record. According to Bloomberg Green, there was a record number of climate disasters that cost $1 billion or more.
  • In its annual energy outlook, BP called the top in oil demand and said it will peak this decade. The oil major said that even if energy policy keeps evolving at the same pace as today, oil demand will still start declining. Will the big oil dividend become the new tobacco stocks? Governments globally could hold legacy energy stocks responsible for cleaning up the environment, which would add yet another headwind for their recovery. Traditionally fossil fuels were some of the worst performers in 2020, but don’t write them all off yet as there is some value left. Small scale nuclear plants designs are gaining wider regulatory acceptance.
  • It’s December 31, 2020 and Brexit has finally arrived. The U.K. will make its final break with the European Union and chaos could ensure with shipping routes. Companies are searching for alternative shipping routes to the crowded truck-ferry route across the English Channel as the Port of Dover has the potential for massive backups with the new customs regime. Tim Morris, CEO of U.K. Major Ports Group, said “the ports and shipping companies are as prepared as they can be…outside of our control is how prepared British businesses are and how pragmatic European nations will be about border arrangements.”

10 Wealth and prosperity affirmations for the new year - Watch the slidshow

Airline Sector

 

Strengths

  • The U.S. government came to domestic carriers’ aid twice in 2020. Congress provided airlines with payroll relief in March of $50 billion and again in December with $15 billion. With significantly reduced demand for air travel, carriers were forced to layoff and furlough tens of thousands of workers. The airline industry accounts for around one in 12 jobs in America. Airline stocks popped higher across the board on December 28 when the second relief bill was signed.
  • Boeing finished 2020 with a win by returning its 737 MAX jet to the skies in the U.S. After two deadly crashes and a global grounding in March 2019, the aircraft was approved by the FAA after extensive fixes and new pilot training. The plane maker had suffered the dual hit of its troubled new aircraft and the pain of reduced jet orders due to lower travel demand.
  • Two of the best performing airlines for the year were Wizz Air Holdings and Ryanair Holdings, up 20.60% and 25.53% respectively. Budget carriers fared better than peers due to their low-cost structure and increased market share. Morgan Stanley said it is positive on the recovery of air travel demand in 2021 and raised its price targets for Wizz Air and Ryanair.

Weaknesses

  • There’s no doubt 2020 was a rough 12 months for the airline industry. The worldwide COVID-19 outbreak decimated air travel, bringing it to a near halt from February to April as countries grappled with strategies to stem the virus’ spread. According to Cirium in its annual airline insights review, year-over-year passenger flights flown in 2020 were down 49% from 2019. Passenger traffic was also down 67% in 2020 from the year prior. The International Air Transport Association (IATA) forecasts the industry is unlikely to fully recover before 2024.
  • Through November, at least 42 airlines globally had entered bankruptcy in 2020. IBA Group predicts there will be over 70 bankruptcies by March 2021 as airlines struggle to wait out the post-vaccination travel recovery. Notable bankruptcies include: LATAM Airlines Group, Norwegian Air Shuttle, SunExpress, South African Airways and Virgin Atlantic.
  • One of the worst performing airline stocks for 2020 was Air Canada, down 52.29%. This massive slump for Canada’s flagship carrier is a prime example of carriers with big international exposure suffering worse than domestic-focused carriers. A large portion of Air Canada’s revenue was from long-haul international routes, which disappeared with the pandemic and strict lockdowns. Since the pandemic began, the carrier eliminated 20,000 jobs and cut capacity by over 80% of flights. Air Canada reported EBITDA of negative C$554 million in the third quarter.

Opportunities

  • The global pandemic arrived in 2020, but so too did a vaccine against it. By the end of the year multiple vaccines were approved in major markets and the global distribution began at warp speed. Airlines were tasked with the “mission of the century” for air transport in distributing the vaccine to the world. IATA CEO Alexandre de Juniac said that “this will be the largest and most complex logistical exercise ever,” as 30% of passenger aircraft were in storage as of early December.
  • Greener flying picked up momentum in 2020. IAG-owned British Airways announced it will work with hydrogen plane startup ZeroAvia to speed the transition to hydrogen power for commercial aircraft. Airbus laid out its own plans for developing hydrogen aircraft by 2035. Iceland plans to move toward carbon-free domestic flights by the end of the decade. The Nordic Network for Electric Aviation ties together airport authorities and airlines in the region including Finnair, Icelandair Group and SAS AB, to emphasize cleaner air travel. The group has received $1.4 million in funding from its members and the governments of Sweden, Denmark, Norway, Finland, Iceland and Greenland.
  • Certain regions fared better than others. The Asia-Pacific region was the first to see a bounce back in air travel due to strong containments of the virus and an emphasis on domestic routes. The virus hit China first, which led to it recovering first. Domestic travel in China was back above 2019 levels by October after largely containing the virus’ spread. Chinese carriers that emphasized domestic routes fared better than global airlines altogether since domestic air travel resumed much faster than international routes. Australia’s domestic airline industry also recovered as the nation largely kept the pandemic controlled and never faced a big outbreak.

Asia-Pacific region wasd first to see air travel bounce back
click to enlarge

Threats

  • Both an opportunity and a threat moving into 2021 and beyond: airlines and/or countries might require travelers to get a COVID-19 vaccination prior to flying. Qantas Airways’ CEO Alan Joyce said the carrier plans to require future international passengers to have a COVID vaccination prior to flying. Joyce added that “it’s going to be a common theme across the board” to require all travelers to take a vaccine. This is an opportunity to restore confidence in flying and a threat that travel won’t recover until a vaccination is widely distribution. Some travelers might not want to obtain a vaccine or not have it available to them. There’s also the question of proving a passenger has actually taken the vaccine.
  • Another long-term threat from the pandemic: lack of business travel. Business travelers account for just 12% of passengers but are typically twice as profitable. Corporate travel often means last minute bookings, cancellations, upgrades and more expensive non-stop flights. Now in the age of remote work and video conferencing, companies could curb travel altogether to reduce risks and save money.
  • London’s Heathrow Airport, one of the world’s busiest, was given the green light for a third runway after the U.K. Supreme Court ruled the expansion does not violate climate-change policy. Although positive news to build more capacity, it might be too late. The airport has seen a dramatic fall in passengers since the pandemic and there are fears travel could take years to recover back to pre-virus levels.

Emerging Markets

 

Strengths

  • The best performing country in emerging Europe for the year was Turkey, gaining 29.06%. The best performing country in Asia this year was South Korea, gaining 30.75%.
  • The Romanian leu was the best performing currency in emerging Europe this year, gaining 7.8%. The Chinese renminbi was the best performing currency in Asia this year, gaining 6.6%.
  • China has been leading the global recovery after a sharp sell-off in March due to the spread of the coronavirus. Chinese equites already passed the pre-pandemic level supported by a quick control of the spread of coronavirus cases and swift government action to provide monetary and fiscal stimulus. China is projected to be the only major country in the world to experience positive economic growth this year. The IMF estimates China will grow by 1.9% in 2020, while global GDP is expected to shrink 4.4%. The American economy is projected to decline 4.3% and the Euro-area faces a steep 8.3% contraction.

Weaknesses

  • The worst performing country in emerging Europe for the year was Hungary, losing 8.63%. The worst performing country in Asia this year was the Philippines, losing 8.64%.
  • The Turkish lira was the worst performing currency in emerging Europe this year, losing 20%. The Pakistani rupee was the worst performing currency in Asia this year, losing 3.5%.
  • In 2020, countries heavily relying on revenue from the tourism sector suffered the most. Thailand, the Philippines, Greece and Australia saw the biggest losses due to the COVID-19 lockdown measures implemented in order to stop travel and the spread of infections. The United Kingdom was not only negatively affected by the uncontrolled spread of the coronavirus but also ongoing talks about the trade deal with the EU. The trade agreement was reached on Christmas Eve, just days before the deadline of December 31, 2020.

Opportunities

  • JPMorgan recommends to overweight emerging market equites over global equites in 2021. Emerging markets could outperform developed markets by more than 20%, supported by continued U.S. dollar weakness and Biden’s victory, which may lead to an easing of the trade war and less market volatility, the broker says.
  • Within the EM universe, the emerging European equites have the most upside in 2021 as they have not yet recovered their losses from the sharp March sell-off due to the spread of the coronavirus. Asian equites as measured by iShares MSCI EM Asia ETF (EEMA US) have led the recovery among global emerging market peers, gaining more than 20% in 2020 while the broad EM stocks (EEM US) gained only 13.5 percent. The emerging European equites (measured by MXMU Index) have been lagging their peers due to Brexit worries, uncontrolled spreading of COVID infections among European states, and lack of unity among EU members on monetary and fiscal stimulus measures. With no deal Brexit out of sight and the EU budget set for the next seven years, the emerging European equites have more room to appreciate further despite strong performance during the last months of 2020.

Emerging Europe stocks may continue to climb in 2021 after strong Q4
click to enlarge

  • The Turkish lira is one of the worst performing global currencies, losing 20% in 2020. However, it may break its long-term down trend in 2021 and appreciate against the dollar supported by change in the country’s monetary policy. The central bank’s new governor pledged to bring inflation lower and keep tight monetary policy. At the end of 2020, the main repo rate was hiked twice by 675 basis points.

Threats

  • 2020 was a volatile year with global stocks selling off sharply in the first quarter of the year. Next year, performance will very much depend on people’s ability to stop the spread of the coronavirus. At the end of the year, the United Kingdom reported a new strain of the coronavirus (more contagious, but not as deadly) which quickly spread into 20 other nations.
  • This year Chinese President Xi Jinping and the Communist Party's Central Committee laid out a plan for a new era in which the party has better control over private business in China. The plan was detailed in a 5,000-word statement – and all regions and departments in the country have been told to follow the new guidelines. According to the new provisions, private firms will need a certain amount of government registered employees, which is already a long-term practice in large private firms but not smaller ones.
  • The United Kingdom and the eurozone agreed on a trade deal avoiding no deal Brexit just days before the December 31 deadline for the transition period. The signed trade deal ensures that goods can pass tariff-free and quota-free, but there will be extra checks and customs declaration. Many crucial issues are still unresolved and will require months if not years of further negotiations. The UK’s Prime Minister Boris Johnson admitted that the Brexit trade deal failed to meet his ambitions on financial services. New rules will apply January 1 and the British government asked businesses to prepare for a bumpy road.

Blockchain and Digital Currencies

 

Strengths

  • Of the cryptocurrencies tracked by CoinMarketCap, there are numerous digital assets that are outperforming for the last week of 2020 – these include DragonVein, Gala and BitBall. However, for the year, one of the most prominent gainers in the crypto world is without a doubt, bitcoin – hovering around $28,600 the morning of New Year’s Eve. 
  • The price of bitcoin reached new record highs in 2020. Investors and analysts remain positive that the cryptocurrency could go higher but are also cautious as the price could just as easily collapse as it did in 2018.

Bitcoin reached new record highs in 2020

click to enlarge

  • Starting in the summer, the amount of cryptocurrency locked in decentralized finance (DeFi) applications skyrocketed, writes BitRates.com. The total locked value across all Ethereum apps began at roughly $700 million in January, and by November almost $15 billion had been deposited. This means the value has seen a 20-fold increase. “With the launch of Ethereum 2.0, DeFi could grow even larger thanks to faster transactions and lower fees,” the article explains.

Weaknesses

  • Of the cryptocurrencies tracked by CoinMarketCap, the worst performing for the last week of 2020 include names like COVER Protocol, Penta and RIFT Token.
  • In March of this year bitcoin crashed 50% -- falling as low as $3,596 on BitMEX, reports Forbes. One day before the crash, the World Health Organization announced “COVID-19 can be characterized as a pandemic,” and then President Trump issued a 30-day travel ban. As reported by CryptoGlobe.com, “In these moments, investors do not sell what they want to sell, they sell whatever they can. This includes bitcoin and other cryptocurrencies.”
  •  In July, several Twitter accounts were hacked to mislead users into sending bitcoin to a fraudulent promotion. Major, verified accounts were compromised in the attack including that of Apple, Uber and even Jeff Bezos

Opportunities

  • In May of this year bitcoin halved its mining rewards. In past years, such an event has triggered a strong rally in prices. Halvings occur every four years and the intent is to keep bitcoin prices reasonably high by balancing supply and demand, reports BitRates.com.
  • PayPal announced in October that it had launched a new service enabling users to buy, hold and sell cryptocurrency directly from their PayPal account. The press release also noted that the company has plans to significantly increase cryptocurrency’s utility by making it available as a funding source for purchases at its 26 million merchants worldwide.
  • PayPal wasn’t the only company warming up to cryptocurrency in 2020. This year has seen the announcement of a handful of bitcoin-related credit or debit cards with Visa’s imprimatur, writes Yahoo! Finance. Coinbase, for example, will offer a Visa debit card that lets its customers send crypto from their Coinbase accounts and earn crypto rewards. Similarly, Binance is offering a zero-fee Visa debit card that offers cash back rewards based on how much of Binance’s token the customer holds, the article continues.

Threats

  • In September, Coinbase decided to take an apolitical stance – limiting political activity among its employees. Unfortunately for the company, this turned into a much bigger issue. In fact, Twitter CEO Jack Dorsey joined in on criticism from the blog post announcing the measures by Coinbase CEO Brian Armstrong. Dorsey said, according to Bloomberg, that Armstrong’s stance runs counter to the purpose of currencies like bitcoin, which is traded on Coinbase and is itself a form of social activism.
  • The year 2020 did not see much of a slowdown in cryptocurrency related thefts and scams. One notable incident includes when YouTube accounts were hacked in March to promote a Bill Gates-themed Ponzi cryptocurrency scam. Another involved AT&T; the telecommunications company was dragged to court over a $1.9 million SIM hijacking and cryptocurrency theft case. KuCoin also felt the pain in September when around $150 million in cryptocurrency was stolen by a cyberattack after being stored in hot wallets, reports ZDnet.
  • In the final days before the 2020 election, President Donald Trump’s campaign website was briefly compromised as hackers looked to fleece cryptocurrency from unsuspecting supporters. The New York Times reports that the hackers were soliciting donations in the monero cryptocurrency due to privacy enhancing properties that make it hard to trace.

Frank Holmes' tips for buying airline stocks?

Leaders and Laggards

Weekly Performance
Index Close Weekly
Change($)
Weekly
Change(%)
10-Yr Treasury Bond 0.92 -0.01 -1.08%
Oil Futures 48.44 +0.21 +0.44%
Hang Seng Composite Index 4,294.66 +134.70 +3.24%
S&P Basic Materials 455.71 +5.26 +1.17%
Korean KOSPI Index 2,873.47 +66.61 +2.37%
S&P Energy 286.14 -1.24 -0.43%
Nasdaq 12,888.28 +83.55 +0.65%
DJIA 30,606.48 +406.61 +1.35%
Russell 2000 1,976.53 -27.43 -1.37%
S&P 500 3,758.24 +55.18 +1.49%
Gold Futures 1,903.50 +20.30 +1.08%
XAU 144.19 +0.46 +0.32%
S&P/TSX VENTURE COMP IDX 873.01 +27.23 +3.22%
S&P/TSX Global Gold Index 315.71 -5.03 -1.57%
Natural Gas Futures 2.54 +0.02 +0.83%
 
Monthly Performance
Index Close Monthly
Change($)
Monthly
Change(%)
Korean KOSPI Index 2,873.47 +239.22 +9.08%
10-Yr Treasury Bond 0.92 -0.01 -1.29%
Gold Futures 1,903.50 +84.60 +4.65%
S&P Basic Materials 455.71 +5.75 +1.28%
S&P 500 3,758.24 +95.79 +2.62%
DJIA 30,606.48 +782.56 +2.62%
Nasdaq 12,888.28 +533.17 +4.32%
Oil Futures 48.44 +3.89 +8.73%
Hang Seng Composite Index 4,294.66 +112.61 +2.69%
S&P/TSX Global Gold Index 315.71 -5.81 -1.81%
XAU 144.19 +4.28 +3.06%
Russell 2000 1,976.53 +140.48 +7.65%
S&P Energy 286.14 +10.52 +3.82%
S&P/TSX VENTURE COMP IDX 873.01 +115.90 +15.31%
Natural Gas Futures 2.54 -0.34 -11.84%
 
Quarterly Performance
Index Close Quarterly
Change($)
Quarterly
Change(%)
XAU 144.19 +1.11 +0.78%
S&P/TSX Global Gold Index 315.71 -48.58 -13.34%
Gold Futures 1,903.50 +0.90 +0.05%
DJIA 30,606.48 +2,824.78 +10.17%
S&P 500 3,758.24 +395.24 +11.75%
Nasdaq 12,888.28 +1,720.77 +15.41%
Korean KOSPI Index 2,873.47 +545.58 +23.44%
Natural Gas Futures 2.54 +0.01 +0.47%
S&P Basic Materials 455.71 +55.70 +13.92%
Russell 2000 1,976.53 +468.83 +31.10%
Oil Futures 48.44 +8.22 +20.44%
Hang Seng Composite Index 4,294.66 +600.61 +16.26%
S&P/TSX VENTURE COMP IDX 873.01 +166.50 +23.57%
S&P Energy 286.14 +58.65 +25.78%
10-Yr Treasury Bond 0.92 +0.23 +33.72%

 

U.S. Global Investors, Inc. is an investment adviser registered with the Securities and Exchange Commission ("SEC"). This does not mean that we are sponsored, recommended, or approved by the SEC, or that our abilities or qualifications in any respect have been passed upon by the SEC or any officer of the SEC.

This commentary should not be considered a solicitation or offering of any investment product.

Certain materials in this commentary may contain dated information. The information provided was current at the time of publication.

Some links above may be directed to third-party websites. U.S. Global Investors does not endorse all information supplied by these websites and is not responsible for their content.

Holdings may change daily. Holdings are reported as of the most recent quarter-end. The following securities mentioned in the article were held by one or more accounts managed by U.S. Global Investors as of (09/30/2020):

Wizz Air Holdings Plc
Ryanair Holdings PLC
Air Canada
Qantas Airways Ltd
BP
Total SE
ABAXX Technologies Inc
K92 Mining Inc
GoGold Resources Inc
Calibre Mining Corp
Metalla Royalty & Streaming Ltd
Roxgold Inc
Revival Gold Inc
Magna Gold Corp
Barksdale Resources Corp
Barrick Gold Corp
Newmont Corp
Tesla Inc
Amazon.com Inc

*The above-mentioned indices are not total returns. These returns reflect simple appreciation only and do not reflect dividend reinvestment. The Dow Jones Industrial Average is a price-weighted average of 30 blue chip stocks that are generally leaders in their industry. The S&P 500 Stock Index is a widely recognized capitalization-weighted index of 500 common stock prices in U.S. companies. The Nasdaq Composite Index is a capitalization-weighted index of all Nasdaq National Market and SmallCap stocks. The Russell 2000 Index® is a U.S. equity index measuring the performance of the 2,000 smallest companies in the Russell 3000®, a widely recognized small-cap index. The Hang Seng Composite Index is a market capitalization-weighted index that comprises the top 200 companies listed on Stock Exchange of Hong Kong, based on average market cap for the 12 months. The Taiwan Stock Exchange Index is a capitalization-weighted index of all listed common shares traded on the Taiwan Stock Exchange. The Korea Stock Price Index is a capitalization-weighted index of all common shares and preferred shares on the Korean Stock Exchanges. 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. The U.S. Trade Weighted Dollar Index provides a general indication of the international value of the U.S. dollar. The S&P/TSX Canadian Gold Capped Sector Index is a modified capitalization-weighted index, whose equity weights are capped 25 percent and index constituents are derived from a subset stock pool of S&P/TSX Composite Index stocks. The S&P 500 Energy Index is a capitalization-weighted index that tracks the companies in the energy sector as a subset of the S&P 500. The S&P 500 Materials Index is a capitalization-weighted index that tracks the companies in the material sector as a subset of the S&P 500. The S&P 500 Financials Index is a capitalization-weighted index. The index was developed with a base level of 10 for the 1941-43 base period. The S&P 500 Industrials Index is a Materials Index is a capitalization-weighted index that tracks the companies in the industrial sector as a subset of the S&P 500. The S&P 500 Consumer Discretionary Index is a capitalization-weighted index that tracks the companies in the consumer discretionary sector as a subset of the S&P 500. The S&P 500 Information Technology Index is a capitalization-weighted index that tracks the companies in the information technology sector as a subset of the S&P 500. The S&P 500 Consumer Staples Index is a Materials Index is a capitalization-weighted index that tracks the companies in the consumer staples sector as a subset of the S&P 500. The S&P 500 Utilities Index is a capitalization-weighted index that tracks the companies in the utilities sector as a subset of the S&P 500. The S&P 500 Healthcare Index is a capitalization-weighted index that tracks the companies in the healthcare sector as a subset of the S&P 500. The S&P 500 Telecom Index is a Materials Index is a capitalization-weighted index that tracks the companies in the telecom sector as a subset of the S&P 500. 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 Consumer Price Index (CPI) is one of the most widely recognized price measures for tracking the price of a market basket of goods and services purchased by individuals. The weights of components are based on consumer spending patterns. The Purchasing Manager’s Index is an indicator of the economic health of the 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/TSX Venture Composite Index is a broad market indicator for the Canadian venture capital market. The index is market capitalization weighted and, at its inception, included 531 companies. A quarterly revision process is used to remove companies that comprise less than 0.05% of the weight of the index, and add companies whose weight, when included, will be greater than 0.05% of the index. Gross domestic product (GDP) is the monetary value of all the finished goods and services produced within a country's borders in a specific time period, though GDP is usually calculated on an annual basis. It includes all of private and public consumption, government outlays, investments and exports less imports that occur within a defined territory.

The MSCI Emerging Markets Europe Index is a free float-adjusted market capitalization index that is designed to measure equity market performance in the emerging markets countries of Europe (Czech Republic, Hungary, Poland, Russia, and Turkey). WilderHill Clean Energy Index is composed of stocks of companies that are publicly traded in the United States and engaged in the business of advancement of cleaner energy and conservation. The MSCI All World Index is designed to represent performance of the full opportunity set of large- and mid-cap stocks across 23 developed and 27 emerging markets. As of November 2020, it covers more than 3,000 constituents across 11 sectors and approximately 85% of the free float-adjusted market capitalization in each market. S&P/Case-Shiller U.S. National Home Price Index tracks the value of single-family housing within the United States. The index is a composite of single-family home price indices for the nine U.S. Census divisions. Frank Holmes has been appointed non-executive chairman of the Board of Directors of HIVE Blockchain Technologies. Both Mr. Holmes and U.S. Global Investors own shares of HIVE. Effective 8/31/2018, Frank Holmes serves as the interim executive chairman of HIVE.

Net Asset Value
as of 05/12/2021

Global Resources Fund PSPFX $6.63 -0.19 Gold and Precious Metals Fund USERX $13.44 -0.32 World Precious Minerals Fund UNWPX $5.28 -0.14 China Region Fund USCOX $9.37 -0.10 Emerging Europe Fund EUROX $6.45 -0.08 All American Equity Fund GBTFX $24.65 No Change Global Luxury Goods Fund USLUX $21.91 -0.48 Near-Term Tax Free Fund NEARX $2.24 -0.01 U.S. Government Securities Ultra-Short Bond Fund UGSDX $2.00 No Change