Expecting a Market Downturn? Make Sure You’re Following the “Noah Rule”

Author: Frank Holmes
Date Posted: December 13, 2019 Read time: 55 min

Predicting a major economic or financial event--whether that's a recession, market downturn or even your own retirement--requires that you also take action. Otherwise your prediction was meaningless.

Press Release: U.S. Global Investors Continues GROW Dividends

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

Expecting a Market Downturn? Make Sure You’re Following the “Noah Rule”

In his letter to Berkshire Hathaway shareholders for fiscal year 2001, Warren Buffett made one of his now-famous pronouncements:  “Predicting rain doesn’t count, building an ark does.”

Buffett admitted to forecasting some of the market turmoil during the year, which was exacerbated by 9/11, and yet he failed to convert thought into action. Thus, he violated what some investors now call “the Noah rule,” named for the ancient prophet who saved himself, his family and a few million animals by building a ship in anticipation of a great flood.

Predicting a major economic or financial event—whether that’s a recession, market downturn or even your own retirement—requires that you also take action. Otherwise your prediction was meaningless. This is why I’m always recommending that investors have a 10 percent weighting in gold, split evenly between physical bullion and gold mining equities, which have historically performed well in times of great volatility.

It’s also important to save and invest every single month, particularly in high-quality companies that are not only paying dividends but also growing those dividends.

This should be as automatic, consistent and pain free as brushing your teeth. After all, what prevents us from getting a mouth full of cavities is not the one or two visits to the dentist every year—it’s the everyday, “boring” act of brushing and flossing. Growing your wealth should be just as incremental and steady, and I’m proud to offer investors an automatic investment plan that uses the advantages of dollar-cost averaging—a strategy that lets you invest a fixed amount in a specific investment at regular intervals.

Alarming Number of Americans Unprepared for Retirement. Are You?

Unfortunately, an alarming number of Americans aren’t saving for retirement. They may have “predicted the rain,” but for whatever reason—and there are many we could point to—they haven’t gotten around to “building the ark.”

Earlier in the year, I shared a Bankrate survey with you that showed that one in five working Americans have nothing saved for retirement. And according to the Federal Reserve’s Survey of Household Economics and Decision Making, four in 10 Americans are so short on cash right now that they wouldn’t be able to afford a $400 “emergency expense.”

This is despite a stellar jobs market and booming stock market.

So who’s saving in America, and who isn’t? A recent report by Bloomberg’s Aaron Brown tackles this very question by breaking down U.S. households into 10 separate income brackets. Unsurprisingly, it’s the earners at the top who are able to save the most, with the very highest earners’ net worth growing an average $51,000 on an annual basis. Households in the bottom decile, meanwhile, end up losing an average $300 year-over-year, as they must borrow or sell assets to support spending.

This group is most vulnerable and “will face problems in the next recession,” Brown writes, adding that “they may find it difficult to climb to financial security.”

Only higher earners are saving to weather future downturns
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What can be done about this to ensure more people are able to save and invest for when the “rain” starts to fall?

Interestingly, Brown makes the case that expanding entitlement programs isn’t the answer. Nor is a wealth tax such as what presidential contender Elizabeth Warren has proposed.

“The U.S. already redistributes enough income to allow low-income households to spend more per earner on average” than many higher-income households, Brown says.

Instead, a “better path to reducing economic insecurity” would be to shore up government pensions and Social Security, among other strategies.

Singapore: A Masterclass in Fiscal Responsibility

Brown’s idea is incredibly similar to what Singapore already does, starting with the Central Provident Fund (CPF)—a sort of Social Security-401(k) hybrid that all Singaporeans are required to participate in. The CPF not only provides participants with retirement earnings but can also be withdrawn before retirement for specific housing and medical expenses. Both employees and employers are responsible for making contributions—20 percent of income on average for the former, 17 percent for the later—which are then invested to earn about 5 percent annually.

The CPF program, launched in the mid-1950s, is often cited for helping residents of the Asian city-state become among the world’s most fiscally responsible. Compared to people in most other developed countries, Singaporeans save a much larger portion of their earnings as a percent of GDP.

A recent study, in fact, found that six in 10 Singapore millennials—those aged 25 to 34—currently save over 20 percent of their salary. Most are not just adequately prepared for retirement, but they’re even more prepared for retirement than their middle-aged counterparts, according to the study.

Singapore has one of the world's highest savings rates
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Again, Singapore has managed to do this without levying huge taxes to support entitlements.

Personal income is taxed progressively between 2 percent and 22 percent, and because there’s no capital gains tax, dividends paid by Singapore-resident companies are completely tax-free.

Corporations pay a reasonable 17 percent on average, and there’s no payroll tax.

What this means is that Singapore’s tax revenue as a percent of gross domestic product (GDP) stands at only 14.1 percent, about two and a half times lower than the OECD average of 34.2 percent.

Some might initially think that lower taxes would result in a lower standard of living, with crumbling infrastructure and services, and yet Singapore’s infrastructure is regularly regarded as the best in the world, with the World Economic Forum (WEF) ranking it first in quality of roads, railroad density and efficiency of air transport and seaport services. The city-state came in first overall in the WEF’s Global Competitiveness Report 2019, followed by the U.S. Hong Kong, the Netherlands and Switzerland rounded out the top five.

Singapore Infrastructure Is World Class Despite Low Taxes

Majority of CFOs Believe a Recession Will Strike in 2020

But back to the idea of preparing for rain. The latest quarterly release of the Duke University/CFO Global Business Outlook shows that a majority (52 percent) of chief financial officers (CFOs) in the U.S. believe a recession will strike in 2020. Fifty-six percent say they’re already taking steps to prepare for a downturn, including raising cash levels and reducing debt.

This is in line with investor behavior right now. So far this year, investors have pulled as much as $135.5 billion from U.S. equity-focused mutual funds and ETFs. That’s the biggest 12-month withdrawal on record going back to 1992, even as stocks have had a phenomenal year, increasing 26 percent.

contrarian signal that investors have fled US stock funds at record pace this year
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A lot of this money has turned up in “safe haven” investments such as bonds and money market funds, but as I said earlier in the week, with yields so low right now, investors might be better served by overweighting gold.

Besides, I think a lot of investors will end up regretting not participating in this market, which has largely shrugged off the political noise and responded positively to the news that the U.S. and China have finally reached a major agreement in their ongoing trade spat.

On a final note, I’d like to share with you a table that illustrates just how rare down years have been in the S&P 500. In only 10 out of the past 40 years, or 25 percent of the time, stocks ended in the red for the year, and of those instances, only four had losses greater than 10 percent. Three quarters of the time, the market was up for the year, with healthy returns of between 10 percent and 30 percent occurring about half the time.

Down years for the S and P 500 are rare
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A recession or market pullback always seems to be right around the corner, but it’s worth remembering that, historically and statistically, stocks have gone up far more often than they’ve gone down. The amount of money that’s been taken off the table this year may be overdone, not to mention premature.

To explore how to fund your financial goals affordably, I invite you to discover our ABC Investment Plan!

4 Reasons Why We Believe In Royalty Companies View the Slideshow

Gold Market

This week spot gold closed at $1,476.33, up $16.16 per ounce, or 1.11 percent. Gold stocks, as measured by the NYSE Arca Gold Miners Index, ended the week higher by 2.51 percent. The S&P/TSX Venture Index came in up just 0.50 percent. The U.S. Trade-Weighted Dollar fell 0.52 percent.

Date Event Survey Actual Prior
Dec-10 Germany ZEW Survey Current Situation -22.0 -19.9 -24.7
Dec-10 Germany ZEW Survey Expectations 0.3 10.7 -2.1
Dec-11 CPI YoY 2.0% 2.1% 1.8%
Dec-11 FOMC Rate Decision (Upper Bound) 1.75% 1.75% 1.75%
Dec-12 Germany CPI YoY 1.1% 1.1% 1.1%
Dec-12 ECB Main Refinancing Rate 0.000% 0.000% 0.000%
Dec-12 PPI Final Demand YoY 1.3% 1.1% 1.1%
Dec-12 Initial Jobless Claims 214k 252k 203k
Dec-15 China Retail Sales YoY 7.6% 7.2%
Dec-17 Housing Starts 1342k 1314k
Dec-18 Eurozone CPI Core YoY 1.3% 1.3%
Dec-19 Initial Jobless Claims 225k 252k
Dec-20 GDP Annualized QoQ 2.1% 2.1%


  • The best performing metal this week was platinum, up 3.57 percent as money managers increased their bullish outlook and took their net long position to a 22-month high. Gold traders remained bullish on the price outlook for bullion even amid trade optimism early in the week, according to the weekly Bloomberg survey. Turkey’s gold reserves rose $348 million from the previous week and are up 38 percent year-over-year. Turkey is taking big steps to increase gold consumption. The nation’s Treasury is writing changes that would allow the certification and standardization of scrap of unregistered gold people might carry when they enter the country, reports Bloomberg. Turkey is a top consumer and its jewelry industry was one of the few to report an uptick in demand for the yellow metal last quarter.
  • Gold has remained resilient this week in the face of many developments that could have rocked the price. Bullion rose after the Federal Reserve signaled it would keep U.S. interest rates on hold, then rose again after jobless claims rose. Gold fell on Thursday after the initial U.S.-China trade deal was announced, but held its own on Friday after weighing the impact of a weaker dollar, reports Bloomberg. Michael McCarthy, chief market strategist at CMC Markets, said in an interview that there are “two currents that are pushing and pulling gold at the money” – the trade war breakthrough and a weaker U.S. dollar.
  • Palladium continues to soar and is headed for $2,000 an ounce. The precious metal is now more expensive than gold has ever been, surpassing bullion’s $1,921 record. Palladium is surging in response to power cuts to South African miners, the second larger supplier. Platinum is also seeing a boost from the mine shutdowns, as South Africa is the number one supplier. South Africa’s mining index hit an 11-year high due to gains in producers. Platinum miners have risen 199 percent year-to-date while gold producers are up 98 percent year-to-date, according to Bloomberg.

Palladium holds to 14-day rally and platinum catches up
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  • The worst performing metal this week was gold, up 1.11 percent, despite an initial trade deal being announced. Gold fell on Thursday from a one-month high after President Trump said the U.S. was very close to a “big deal” with China, reports Bloomberg. Due to high prices for gold in India and an increase in import taxes, smuggling is on the rise. The India Gem and Jewellery Domestic Council said smuggled inflows of gold could increase 30 percent to 40 percent this year to 140 tons. Bloomberg reports that customs officials caught 30 passengers on one flight alone trying to smuggle 16.5 pounds of the precious metal into the country.
  • South African platinum-group metals output fell for a third straight month in October due to ongoing power outages. According to Statistics South Africa, output dropped 4.8 percent from a year earlier. Petra Diamonds began halting mining operations in the country after receiving a notice from the power company to reduce its power load. Bloomberg reports that both Impala Platinum Holdings and Sibanye Gold Ltd. were also impacted by government notices of power shutoffs.
  • Alamos Gold fired more than 200 workers at its Kirazli project in Turkey due to ongoing permit renewals.  Bloomberg reports that construction has been on hold at the project for about four months and that Alamos will reinstate the workers once mining permits are renewed.


  • Goldman Sachs said that investors should diversify their long-term bond holdings with gold due to “fear-driven demand” for the metal, reports Bloomberg. Analysts including Sabine Schels write in a note last Friday that “gold cannot fully replace government bonds in a portfolio, but the case to reallocate a portion of normal bond exposure to gold is as strong as ever.” Goldman’s Jeff Currie said in a Bloomberg TV interview this week that he likes “gold better than bonds because the bonds won’t reflect de-dollarization.” Mark Mobius said that if he were to invest $100,000 today, he would allocate 10 percent of it to physical gold. Citigroup is bullish that gold has room to grow due to little possibility that the Fed will raise interest rates in 2020. Russ Koesterich, portfolio manager at BlackRock, said in a Bloomberg interview that “any shocks to equities are likely to come from concerns over growth and, or geopolitics. In both scenarios, gold is likely to prove an effective hedge.”
  • Inflation could have room to grow in 2020 and some are calling it an underappreciated risk heading into 2020. Jason Bloom, an Invesco strategist, said he almost ran back to his desk to buy inflation-protected Treasuries after asking an audience of 150 advisors if they were worried about inflation and none of them said yes. Goldman says we could see a rise in inflation due to higher commodity prices from dropping inventories and low capital spending on new production. Jeff Currie, quoted earlier in this section, said in a Bloomberg interview that “we are finally cleaning up the excess of the industry, which is why we like being long.” Presidential candidate Elizabeth Warren said this week that she would install dovish policymakers at the Fed is she were to win the election.
  • In an example of a “smart” gold transaction, Barrick Gold sold an 83.25 percent stake in the Massawa project in Senegal to Teranga Gold for $430 million in cash and shares. Teranga’s flagship mine is just 25 kilometers from the Massawa project, making it a smart buy for Teranga with infrastructure and processing nearby, reports Bloomberg. Pending and completed gold M&A has reached around $33 million so far in 2019 – the highest amount since 2011. Metalla Royalty & Streaming Ltd. announced this week that it has applied to list its common shares on the New York Stock Exchange under the ticker symbol MTA. Metalla is a precious metals royalty and streaming company that has seen its share price increase significantly since the start of the year, along with the gold price.

Metalla Royalty and Streaming Share Price Increase
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  • Howie Lee, economist at Oversea-Chinese Banking Corp., said in a note that “we see little reason for gold to return above $1,500 an ounce.” They expect an improvement in global growth to push gold lower, potentially dropping to $1,400 an ounce in the fourth quarter next year. “Without further cuts on interest rates, gold lacks the impetus to rally higher.” Morgan Stanley is also cautious on gold due to improving global growth in 2020, reports Bloomberg. Analysts including Susan Bates wrote in a note that “a weakening U.S. dollar is likely to lend some support, and an uncertain trade outcome remains a key upside risk.” They forecast gold at $1,499 an ounce in 2020.
  • Bloomberg Economics tabulated that U.S. business debt exceeds household debt for the first time since 1991. Fed Chairman Jerome Powell noted in October that leverage at public and private business is historically high and they are monitoring it. What is out of step here is that with corporate debt ballooning, business investment has fallen for the past two quarters.  Almost like a Ponzi  type scenario: Borrow from Peter to pay Paul so you can buy back your stock to make the per-share metrics inflate or pay the shareholder a dividend from borrowed money.
  • More on South Africa’s power troubles… On Monday, Impala Platinum Holdings had just two hours to get thousands of workers back to the surface at its 1 kilometer deep shafts when the utility company announced power cuts. Eskom Holdings SOC Ltd., the state-owned utility, shut down South Africa’s key mining industry for a full 24 hours this week and the rolling blackouts threaten to tip the economy into recession, reports Bloomberg. Johan Theron, a spokesman for Impala, said “we can’t operate like this, but if we don’t cut the power, the national grid collapses.”

Frank Holmes at VRIC

Index Summary

  • The major market indices finished up this week. The Dow Jones Industrial Average gained 0.43 percent. The S&P 500 Stock Index rose 0.73 percent, while the Nasdaq Composite climbed 0.91 percent. The Russell 2000 small capitalization index gained 0.25 percent this week.
  • The Hang Seng Composite gained 3.92 percent this week; while Taiwan was up 2.74 percent and the KOSPI rose 4.25 percent.
  • The 10-year Treasury bond yield fell 2 basis points to 1.82 percent.

Domestic Equity Market

SP 500 Economic Sectors weekly performance
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  • Information technology was the best performing sector of the week, increasing 1.96 percent compared to an overall increase of 0.73 percent for the S&P 500.
  • Western Digital was the best performing S&P 500 stock for the week, increasing 10.64 percent.
  • Saudi Aramco rallied again Thursday, reaching a $2 trillion valuation on its second day of trading. Crown Prince Mohammad bin Salman had been seeking a $2 trillion valuation to fuel plans to diversify the Saudi economy. Aramco’s stock rallied 8.2 percent on Thursday after a 10 percent surge on its first day of trading Wednesday.


  • Real estate was the worst performing sector for the week, decreasing 2.56 percent.
  • Coty was the worst performing S&P 500 stock for the week, falling 6.66 percent.
  • Tullow Oil plunged 60 percent after its CEO and the exploration director suddenly quit. The company also halted its dividend and reduced its production guidance.


  • JPMorgan is bullish for 2020. The bank is advising clients to overweight equities and underweight bonds, according to their latest note detailing the bank’s top market themes for the upcoming year.
  • Delta Air Lines sees another annual rise in profit and revenue in 2020 driven by what Chief Executive Ed Bastian called a growing interest in air travel by consumers across the generational spectrum.
  • Western Digital shares rose on Friday after RBC Capital Markets wrote that it was officially calling the bottom on memory pricing after meeting with the company’s management team.


  • Citi analyst Michael Bilerman downgraded Regency Centers to Neutral from Buy with a price target of $71, down from $75. Into 2020, the analyst expects the stock to continue to struggle to move higher amid flattish growth trends, "until a clearer growth picture into 2021 emerges."
  • AO Smith was cut to sector weight from overweight by KeyBanc as the firm is more conservative on the pace of recovery in China.
  • A broker group warned of investor risks posed by U.S. direct share-listing proposal. The SEC risks weakening investor protections if it allows companies to raise money in the public market through a direct listing without the support of underwriting banks, an influential broker group said.

The Economy and Bond Market



  • A measure of U.S. small-business earnings jumped 10 points last month to 2 percent, the second highest level on record, according to data from the National Federation of Independent Business. The group’s earnings gauge was the largest contributor to the Small Business Optimism Index, which rose to 104.7 in its biggest month-over-month gain since May 2018. “November reflects a stark departure from previous months of chatter about a possible recession that dampened owners’ economic outlook,” wrote NFIB chief economist William Dunkelberg.

US Small Business Earnings Index Shows 10-Point Advance in November
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  • The Federal Open Markets Committee has kept rates at the current target range between 1.5 percent and 1.75 percent, reports Yahoo! Finance. “The Committee judges that the current stance of monetary policy is appropriate to support sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee’s symmetric 2 percent objective,” the Fed’s statement said.
  • Mortgage applications increased 3.8 percent from one week earlier, according to data from the Mortgage Bankers Association’s Weekly Mortgage Applications Survey for the week ending December 6, 2019. Low mortgage rates continue to be the trend as 2019 comes to an end, and mortgage applications responded accordingly last week.


  • U.S. retail sales increased less than expected in November, reports Reuters, as Americans cut back on discretionary spending, which could see economists dialing back economic growth forecasts for the fourth quarter. The Commerce Department said on Friday retail sales rose 0.2 percent last month.
  • The number of Americans filing applications for unemployment benefits jumped to more than a two-year high last week, writes Reuters. Initial claims for state unemployment benefits surged 49,000 to a seasonally adjusted 252,000 for the week ended Dec. 7, the highest reading since September 2017, the Labor Department said on Thursday.
  • U.S. worker productivity fell by the most in nearly four years in the third quarter. Nonfarm productivity, which measures hourly output per worker, decreased at a 0.2 percent annualized rate in the last quarter, the biggest drop since the fourth quarter of 2015, the Labor Department said earlier this week.


  • Next Friday will see the readout on U.S. third quarter GDP, expected at an annualized rate of 2.1 percent. That would match the previous estimate, reassuring investors as the year comes to a close.
  • The University of Michigan Sentiment survey for December also comes out next Friday and is expected to hold at 99.2, reflecting strong sentiment.
  • Trump agreed to slash China tariffs and scrap new duties — a sign there may be a backing down in the trade war, reports Business Insider.


  • Starting the week on Monday are the IHS Markit flash PMIs. Following the disappointing ISM PMIs for November, all eyes will be on the first glimpse at economic activity in December.
  • The New York Fed will also publish its Empire State manufacturing gauge for December on Monday. Given this year’s ongoing manufacturing weakness, any negative surprises there could ring alarm bells.
  • The Leading Index will print next Thursday and is expected to show a 0.1 percent gain. However, given the prior -0.1 percent reading, a disappointment cannot be completely discounted. 

Energy and Natural Resources Market



  • The best performing major commodity for the week was iron ore, which gained 5.25 percent, likely on trade news. An initial trade deal between the U.S. and China was announced on Thursday evening giving commodities a boost. Copper hit a seven-month high and was up 2.13 percent for the week while oil hit a three-month high of $60 per barrel. Copper demand outlooks are becoming more bullish as the world moves toward becoming low carbon. Legal & General Investment Management predicts that copper prices will surge as producers struggle to meet demand for clean energy infrastructure such as wind turbines, solar panels and electric vehicles.
  • Bloomberg reports that Germany has passed Norway to become the country with the most electric vehicle sales at almost 60,000 cars so far in 2019. Norway has been the top seller of electric cars than any country in Europe since at least 2010. Bernhard Mattes, head of Germany’s VDA lobby, said that “the electric model offensive of the German manufacturers is in full swing” and that the country will triple offerings to 150 models by 2023.
  • Palladium prices hit a record high of $1,940.34 an ounce on Thursday in its 15th straight day of gains. Bloomberg reports that the precious metal is up 54 percent so far in 2019, driven by supply concerns from South African miners that are dealing with electricity shortages. Palladium is now more expensive than gold has ever been and some think it could hit $2,000 an ounce before 2020.


  • The worst performing major commodity for the week was natural gas, which fell 1.20 percent on the outlook for warmer weather in coming weeks. Caterpillar Inc. announced that its North American machine sales grew 5 percent last month, which is the slowest growth since September 2017. Bloomberg reports that the company, the world’s largest maker of mining and construction equipment, announced temporary layoffs at some U.S. plants a few weeks ago and refrained from giving 2020 sales guidance in October.

Caterpillar machine sales in North America grow at lowest rate since 2017
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  • Chevron Corp. announced plans to write down as much as $11 billion in the fourth quarter mostly due to its Appalachia natural gas assets after a big slump in prices, reports Bloomberg. According to a company statement this week, Chevron is considering selling its shale-gas holdings and an LNG project in Canada. The company’s move away from Canada is another blow to the country’s energy industry.
  • Although oil saw a small weekly gain, there are still concerns of a surplus in 2020. The International Energy Agency (IEA) said in a report that oil inventories might accumulate by 700,000 barrels a day in the first quarter of next year even if OPEC makes all its planned cuts and even after Saudi Arabia announced additional cuts last week. U.S. crude stockpiles rose the most since January this week and demand fell to a three-year low, according to the U.S. Energy Information Administration.


  • Enbridge Inc. has joined Enterprise Products Partners LP’s effort to construct a crude terminal off the Texas coast, reports Bloomberg News. The Sea Port Oil Terminal plans to begin service in the second half of 2020 with the ability to load 2 million barrels a day onto supertankers. As the rate of U.S. crude output continues to increase, more infrastructures are needed to export the fuel and Enbridge joining the project gives the port more momentum.
  • China’s official Xinhua News Agency said on Monday that the country has announced the formation of a long-planned national oil and gas pipeline company to reform its energy sector and help supply keep pace with demand. Bloomberg reports that China will merge the networks operated by its three state-owned companies to remove barriers and operate as a single company.
  • Japan’s Kawasaki Heavy Industries Ltd. unveiled the world’s first liquefied hydrogen carrier in a big step toward establishing an international hydrogen energy supply chain, reports Bloomberg. Hydrogen is the lightest element and offers carbon-free power for countries that have little space for wind and solar equipment. Kawasaki said its vessel will be able to hold hydrogen chilled to minus 253 degrees Celsius and is set for completion in by 2020. Heraeus Holding GmbH, in its weekly market report, says Asia’s fuel cell push has the potential to exceed 1 million ounces of platinum demand in the long term. Fuel cells use platinum as the catalyst and hydrogen as the fuel to generate the electric current.


  • Zambia is facing a big risk of having to switch off power production entirely from its Kariba hydropower damn for the first time ever as water levels continue to fall after hitting a 20-year low, reports Bloomberg. Both Zambia and Zimbabwe depend on power from the plants at Kariba, which is the world’s largest man-made freshwater reservoir, for half of its capacity. This is negative for copper miners in the area who would have to halt production at mines with the power off.
  • Analysts at Sanford C. Bernstein & Co. recommend in a note to clients that they take profit now from Saudi Aramco after the company jumped 10 percent in its first day and hit the sought-after $2 trillion valuation. The analysts said that a low dividend yield, political risk of the government running the oil giant and a poor outlook for oil prices point to a valuation for the company that is 28 percent lower than it is now.
  • Anglo American Plc announced that its De Beers unit will mine 1million carats less than previously expected in both 2020 and 2021 after sales have slumped in 2019. Bloomberg reports that De Beers’ sales so far this year are down by more than $1.2 billion from the same period in 2018. Buyers have become frustrated by the cost of rough stones as the price of polished gems continues to fall. As a result, De Beers cut prices by 5 percent in November.

How do different countries celebrate Christmas?

Emerging Europe



  • Hungary was the best performing country this week, gaining 3.5 percent. Hungary’s biggest lender, OTP Bank, gained 4.2 percent in the past five days alongside the global equity rally. The bank’s outperformance was likely due to investors replacing Polish bank stocks with local peers due to the ruling by the top European Union court on Polish foreign currency loans.
  • The Russian ruble was the best performing currency this week, gaining 1.4 percent. The U.S. Senate committee delayed a vote on a bill to impose sanctions on Russia for its actions in Ukraine and interference in elections. The Vote on the Defending American Security from Kremlin Aggression Act (DASKA), described by Senator Lindsay Graham as the “sanction bill from hell”, targeting Russian banks and the energy sector has been delayed for now.
  • Healthcare was the best performing sector among eastern European markets this week.


  • Romania was the worst performing country this week, losing 1 percent. S&P Global Ratings cut Romania’s credit outlook from stable to negative and downgraded country’s credit rating by one notch to junk. A widening current account gap and a debt-to-GDP ratio above the EU’s limit are the main two factors for the downgrade.
  • The Turkish lira was the worst performing currency in the region this week, losing 60 basis points. The central bank cut its rate by 200 basis points, more than expected, bringing the repo rate to 12 percent from 24 percent in June.
  • Communication service was the worst performing sector among eastern European markets this week.


  • U.K. election results show Boris Johnson’s Conservative party won 365 seats, giving Johnson the majority in the 650-seat House of Commons. Johnson promised to take the U.K. out of the Eurozone and it could happen as soon as January 31, 2020. The probability of a hard Brexit has declined significantly, but trade negotiations will have to start soon. The market reacted positively to the outcome of Thursday’s election. The pound gained 1.3 percent on Friday and equites moved higher by 1.5 percent.
  • Christine Lagarde, in her first press conference as President of the European Central Bank (ECB), announced that the central bank will soon undertake a monetary policy strategy review. The review will start in January and is expected to be completed before the end of 2020. The ECB for now will continue the monetary easing program started by Mario Draghi in September. Lagarde also stressed the importance of fiscal policy to be part of the Eurozone economic policy.  
  • Emerging market assets will outperform their developed peers, according to Bloomberg’s survey of 57 global investors, strategists and traders on their outlook for the next year. Russia’s ruble, the best-performing emerging currency so far this year, is also a top pick for 2020, supported by the court’s high real rate. Brazil’s and Turkey’s economies are expected to grow at the fastest rates. Among members of central emerging Europe, the biggest rate cuts are expected in Turkey and Russia.

investors most bullish on economic outlook in turkey and brazil
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  • The U.S. Senate Foreign Relations Committee voted to bring sanctions on Turkey, a NATO ally, for its military offensive in northern Syria and for its purchase of a Russian-made missile system. The proposal would penalize Turkey’s leaders, energy industry and financial system involved in military action in Syria. The new bill, once passed and signed by President Trump would also sanction state bank Halkbank, but does not include the ban of U.S. purchases of Turkish sovereign debt. 
  • Czech inflation surprisingly spiked in November, rising 3.1 percent from a year earlier in November, compared with 2.7 percent in the previous month. The rate breached the upper limit of the central bank’s 1 to 3 percent tolerance band for the first time since 2012. The central bank has been hiking rates and might have to continue its tightening policy. 
  • Poland once again clashed with the E.U., this time about a push for climate neutrality by 2050. Poland was the only country that endorsed the objective to eliminate net carbon emissions by 2050 without committing to meeting it. Poland was given another six months to decide whether to join the effort. If Poland’s government continues to stand against it, it might not have access to 100 billion-euro in climate transition funds. The nation produces some 80 percent of its power from coal, compared to 50 percent in the Czech Republic and 15 percent in Hungary. Poland proposed the idea to settle the date for neutrality by 2070.

China Region



  • The best performing index in the region was Hong Kong, which rose 4.49 percent on the week. Asian stock markets posted sharp gains Friday, after media reports said U.S. President Donald Trump has agreed to a partial China-U.S. trade deal, including lower U.S. tariffs in exchange for China buying of U.S. farm products. Hong Kong, Shanghai and Tokyo all posted strong gains, as did many regional exchanges.
  • Tysan Holdings Ltd. was the top performers in the Hang Seng Composite on the week, climbing 21.71 percent.
  • Taiwan’s imports and exports both clocked in higher than expected. Year-over-year November imports to Taiwan were up 5.8 percent, while exports were up 3.8 percent, well ahead of an expected 1.1 percent reading. Both data bounced back from declines in the October year-over-year readings.


  • The poorest performing index in the region was Indonesia, which rose only 17 basis points.
  • Redco Properties Group Ltd. was the poorest performing sector in the HSCI on the week, falling 21.65 percent.
  • Year-over-year November exports from China were a bit weaker than expected. A gain of 80 basis points was consensus; the actual print was a 1.1 percent decline instead, which was also down from the October reading.


  • The U.S. and China have reached a Phase One Trade Agreement, reports the Wall St. Journal on Friday. According to the article, Trump has approved a pact that will scale back existing tariffs on Chinese imports and eliminate new levies scheduled to take effect on Sunday.
  • In what Bloomberg News calls the first major purchase of an Indonesian lender by a Thai Bank, Bangkok Bank Pcl snapped up a controlling stake in Indonesia’s PT Bank Permata, purchasing a near 90 percent holding from Standard Chartered Plc and a local partner. The article notes that the deal by Bangkok Bank marks a shift from previously more conservative tactics for the bank, Thailand’s second-largest bank by assets.
  • The South Pacific region of Bougainville cast referendum ballots for the last two weeks, and the votes are in: almost 98 percent of the 181,067 ballots cast in the poll on independence from Papua New Guinea were in favor of the archipelago’s secession, which should now trigger negotiations between the governments of PNG and that of semi-autonomous Bougainville. The referendum, which remains non-binding, was part of a key 2001 peace agreement that ended a roughly decade-long civil war in which some 15,000 people died. 

Can you spot the Bougainville Region of Papua New Guinea?
click to enlarge


  • Despite the U.S. and China reaching a preliminary agreement in their long-running trade war, we continue to keep a close eye on any related news, as it remains a threat until it isn’t.
  • The increasingly tech-heavy Ping An Insurance has cut its U.S. IPO for its cloud financial tech platform OneConnect Financial Technology Co. almost in half from initial estimates. OneConnect is backed by SoftBank’s Vision Fund and provides technology solutions for small and midsize financial institutions in China. The new listing will trade on the NYSE under the ticker OCFT.
  • Retail sales in Singapore missed again, showing a 4.3 percent decline versus expectations for only a 1.5 percent decline—that is despite the record third-quarter tourist arrivals this year, which we highlighted last week. 

Blockchain and Digital Currencies



  • Of the cryptocurrencies tracked by CoinMarketCap, the best performing for the week ended December 13 was Bitblocks, up 354.28 percent.
  • On Thursday, it was announced that Binance has teamed up with peer-to-peer bitcoin exchange Paxful to add new ways to purchase bitcoin, writes CoinDesk. Paxful’s Virtual Bitcoin Kiosk will exclusively serve Binance as an additional fiat-to-crypto on-ramp for its users, joining services such as Koinal and Simplex, the article explains.
  • As it seeks to build an investment bank for the age of tokenization, crypto startup TokenSoft has obtained a key regulatory seal of approval, reports CoinDesk. DTAC LLC (a new TokenSoft subsidiary) has been registered as a transfer agent with the U.S. Securities and Exchange and Commission. “We service issuers who are doing both exempt offerings as well as registered offerings, so [this] was a request as well as a necessity,” said Mason Borda, CEO of TokenSoft.


  • Of the cryptocurrencies tracked by CoinMarketCap, the worst performing for the week ended December 13 was Pledge Coin, down 75.15 percent.
  • Did you know that only 14 percent of the 18 million bitcoins outstanding exchanged hands during the last week of November? That’s according to a recent Flipside Crypto data, which notes that this amount is down from more than 50 percent about a year ago. As the Wall St. Journal points out, one reason for the slowdown could be the “sobering reality that creating new global monetary standards requires more than computer code.”
  • This week U.S. authorities arrested three men who allegedly were behind a $722 million bitcoin scam known as the “BitClub Network,” according to Coin Rivet. The Justice Department labeled the scheme, which began operations in April 2014, a “high-tech Ponzi scheme” that promised victims bitcoin mining profits while it took money from investors who recruited new members. This was a classic con game with a virtual twist—false promises of large returns for investing in the mining of bitcoin,” explained Paul Delacourt, assistant director of the FBI’s Los Angeles field office.


  • Bitcoin is nearing its supply limit of 21 million coins, and largely because of this, it “could be one of the soundest quasi-currency, stores-of-value ever created,” write Bloomberg Intelligence’s Mike McGlone and James Seyffart. Compared to bitcoin, the broader crypto market is infinite and oversupplied, which has held price appreciation in check. The number of tradable cryptocurrencies listed on Coinmarketcap.com has grown to about 3,000—the most ever—up from only about 600 coins at the beginning of 2017. What’s more, the two say, bitcoin is “winning the adoption race” as it “evolves into a digital version of gold.”

Bitcoin is nearing peak supply, which should support prices
click to enlarge

  • Gas flaring has risen to a record in Texas this year amid a lack of pipeline capacity. Crusoe Energy Systems is harnessing some of the surplus gas at source to turn it into electricity, writes Bloomberg, powering the data centers that in turn generate revenue by mining Bitcoin. Chief Executive Officer Chase Lochmiller said the company will install 70 units next year, each with a capacity of about 1 megawatt.
  • According to officials familiar with the matter and as reported by Bloomberg, European Central Bank (ECB) policymakers will informally talk about the prospect of launching their own digital currency. The ECB’s first policy meeting under new President Christine Lagarde took place this week. Lagarde has previously said that central banks should consider issuing their own digital currency as it could support public goals such as financial inclusion, consumer protection and payment privacy.


  • A press release on Monday announced that LedgerX CEO and COO Paul and Juthica Chou have been placed on administrative leave effective immediately, reports CoinDesk, due to a tussle with the Commodities Futures Trading Commission (CFTC). According to letters obtained through the Freedom of Information request, the company’s leadership believed former CFTC Chairman Christopher Giancarlo held a “personal animus” toward LedgerX. The company has been working with the CFTC to secure its amendment since 2018 in order to launch physically-settled bitcoin futures.
  • A new study by the Organization for Economic Cooperation and Development (OECD) has discovered that Southeast Asian investors may be too bullish on crypto assets for their “own financial good,” writes CoinDesk. The report of Vietnamese, Filipino and Malaysian consumer crypto sentiments found that out of 3,006 respondents, 80 percent were aware of cryptocurrencies while 53 percent reported a desire to hold such assets despite a “strong likelihood” such investment would place them in financial danger.
  • Matic Network, one of Binance’s initial exchange offering (IEO) tokens, dropped nearly 70 percent mid-week, reports CoinTelegraph, while other IEOs like Celer Network and Harmony also followed suit. Although the rationale for MATIC’s plunge remains unclear, Samuel Gosling of Validity Crypto tweeted a warning the day prior saying that Matic Network had moved 15 percent of its token supply for a potential liquidation. Then, Matic Network co-founder Sandeep Nailwal later speculated market manipulation as a cause for the drop on a YouTube appearance, CoinTelegraph goes on to explain.

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Leaders and Laggards

Weekly Performance
Index Close Weekly
10-Yr Treasury Bond 1.82 -0.02 -1.09%
Oil Futures 59.77 +0.57 +0.96%
Hang Seng Composite Index 3,750.69 +141.45 +3.92%
S&P Basic Materials 377.56 +2.27 +0.60%
Korean KOSPI Index 2,170.25 +88.40 +4.25%
S&P Energy 441.35 +3.44 +0.79%
Nasdaq 8,734.88 +78.35 +0.91%
DJIA 28,135.38 +120.32 +0.43%
Russell 2000 1,637.99 +4.15 +0.25%
S&P 500 3,168.78 +22.87 +0.73%
Gold Futures 1,480.60 +15.50 +1.06%
XAU 100.28 +4.38 +4.57%
S&P/TSX VENTURE COMP IDX 540.44 +2.62 +0.49%
S&P/TSX Global Gold Index 251.41 +7.38 +3.02%
Natural Gas Futures 2.31 -0.03 -1.24%


Monthly Performance
Index Close Monthly
Korean KOSPI Index 2,170.25 +47.80 +2.25%
10-Yr Treasury Bond 1.82 -0.07 -3.66%
Gold Futures 1,480.60 +10.40 +0.71%
S&P Basic Materials 377.56 +0.81 +0.21%
S&P 500 3,168.78 +74.74 +2.42%
DJIA 28,135.38 +351.79 +1.27%
Nasdaq 8,734.88 +252.78 +2.98%
Oil Futures 59.77 +2.65 +4.64%
Hang Seng Composite Index 3,750.69 +142.45 +3.95%
S&P/TSX Global Gold Index 251.41 +11.39 +4.75%
XAU 100.28 +7.02 +7.53%
Russell 2000 1,637.99 +48.81 +3.07%
S&P Energy 441.35 +2.56 +0.58%
S&P/TSX VENTURE COMP IDX 540.44 +9.81 +1.85%
Natural Gas Futures 2.31 -0.30 -11.35%


Quarterly Performance
Index Close Quarterly
XAU 100.28 +9.20 +10.10%
S&P/TSX Global Gold Index 251.41 +13.26 +5.57%
Gold Futures 1,480.60 -33.20 -2.19%
DJIA 28,135.38 +952.93 +3.51%
S&P 500 3,168.78 +159.21 +5.29%
Nasdaq 8,734.88 +540.41 +6.59%
Korean KOSPI Index 2,170.25 +121.05 +5.91%
Natural Gas Futures 2.31 -0.27 -10.45%
S&P Basic Materials 377.56 +12.40 +3.40%
Russell 2000 1,637.99 +62.93 +4.00%
Oil Futures 59.77 +4.68 +8.50%
Hang Seng Composite Index 3,750.69 +115.27 +3.17%
S&P/TSX VENTURE COMP IDX 540.44 -48.72 -8.27%
S&P Energy 441.35 -2.90 -0.65%
10-Yr Treasury Bond 1.82 +0.05 +2.60%


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 (09/30/2019):

Ping An Insurance
OTP Bank
Anglo American PLC
Impala Platinum Holdings Ltd
Alamos Gold Inc
Barrick Gold Corp
Teranga Gold Corp
Delta Air Lines Inc
AO Smith Corp
Metalla Royalty & Streaming Ltd

*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 National Federation of Independent Business’s (NFIB) Index of business optimism is based on responses from 1221 member firms. The Organization for Economic Co-operation and Development (OECD) is a group of 34 member countries that discuss and develop economic and social policy. OECD members are democratic countries that support free-market economies. The Global Competitiveness Index (GCI) is an annual yardstick for policy-makers to look beyond short-term and reactionary measures and to instead assess their progress against the full set of factors that determine productivity. These are organized into 12 pillars: Institutions; Infrastructure; ICT adoption; Macroeconomic stability; Health; Skills; Product market; Labor market; Financial system; Market size; Business dynamism; and Innovation capability. The University of Michigan Confidence Index is a survey of consumer confidence conducted by the University of Michigan. The report, released on the tenth of each month, gives a snapshot of whether or not consumers are willing to spend money. The ISM manufacturing composite index is a diffusion index calculated from five of the eight sub-components of a monthly survey of purchasing managers at roughly 300 manufacturing firms from 21 industries in all 50 states. The Empire State Manufacturing Index is an index based on the monthly survey of manufacturers in New York State conducted by the Federal Reserve Bank of New York. The index summarizes general business conditions in New York State. ECRI’s Weekly Leading Index (WLI) is a composite index constructed of seven USA weekly economic series (M2, JOC-ECRI industrial materials price index, initial unemployment insurance claims, mortgage applications, S&P 500, 10-yr Treasury bond yield, and bond quality spread).