Midterm Elections: Gridlock Was the Best Possible Outcome

Author: Frank Holmes
Date Posted: November 9, 2018 Read time: 49 min

Celebrated value investor Benjamin Graham, who mentored a young Warren Buffett, liked to say that the market is a voting machine in the short term, a weighing machine in the long term. This week the market voted to reward stocks in the aftermath of the midterm elections, which gave Democrats control of the House and left the Senate in the hands of Republicans.

Press Release: U.S. Global Investors Reports Financial Results for the First Quarter of 2019 Fiscal Year

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

Midterm Elections Gridlock Was the Best Possible Outcome

Celebrated value investor Benjamin Graham, who mentored a young Warren Buffett, liked to say that the market is a voting machine in the short term, a weighing machine in the long term. This week the market voted to reward stocks in the aftermath of the midterm elections, which gave Democrats control of the House and left the Senate in the hands of Republicans. This all but guarantees that gridlock will be the status quo in Washington, at least for the next two years.

A divided Congress might very well be the only time gridlock is a positive. Corporate gridlock can hold a company back from growing, and there’s not a soul alive who enjoys sitting in bumper-to-bumper traffic. The congestion in Austin, just north of our headquarters, is legendary, costing commuters as much as 43 hours a year. (This congestion could be improved with better infrastructure, which I’ll get to in a second.)

The truth is that markets favor divided government. Both Republican and Democratic presidents have had the greatest effects on stocks when Congress was split and gridlock prevailed, according to Bank of America Merrill Lynch data. Granted, such leadership makeups are rare, occurring for only a combined 11 years in the past 90, so I’ll be curious to see if the trend holds true.

Stock markets have generally thrived under a divided government
click to enlarge

But in the short term, markets showed a lot of enthusiasm. The S&P 500 Index advanced more than 2 percent on Wednesday, marking the best post-midterm rally since 1982. Stocks got slammed only after the Federal Reserve announced more rate hikes were forthcoming.

I want to remind you that we’ve already entered the three most bullish quarters for stocks in the four-year presidential cycle. Average returns in the fourth quarter of year two have historically been 4 percent, followed by 5.2 percent in the first quarter of year three and 3.6 percent in the second quarter.

Record Votes, Record Campaign Spending

Voter turnout was abnormally high for a midterm election. Here in Texas, nearly 53 percent of registered voters cast ballots—a very strong showing thanks in large part to the much-publicized and heavily funded Senate race between Senator Ted Cruz and Congressman Beto O’Rourke.

Indeed, a whole lot of cash passed hands this cycle. For the first time in U.S. history, more than $5 billion was spent during a midterm election by candidates, political parties and other groups, according to the Center for Responsive Politics (CRP). That’s up almost 40 percent from spending levels in 2014. The biggest independent donor was billionaire Sheldon Adelson, founder and CEO of Las Vegas Sands, who shelled out more than $113 million in support of Republican candidates.

More than 5 billion was spent on midterm elections far surpassing previous totals
click to enlarge

Because it’s such a massive amount, it might help to put $5.2 billion into perspective. An estimated 113 million Americans participated in the midterm election, a new record, meaning roughly $46 was spent on each voter.

Here’s another way to look at it. Between the House and Senate, 470 seats were up for grabs. That comes out to an incredible $11 million per seat.

Big Winners: Infrastructure and Cannabis

Like every election cycle, this one is sure to have some huge consequences—not least of which is House Democrats’ pledge to turn up the heat on President Donald Trump. Representatives Maxine Waters, Adam Schiff, Elijah Cummings and other staunch critics of the president are expected to lead key oversight and intelligence committees that could open investigations into Trump’s finances and handling of White House personnel changes as soon as this January.

My hope is that Democrats and the president can agree to come together on areas of common interest. That includes infrastructure. Remember the $1 trillion infrastructure plan? Remember “Infrastructure Week”? It’s possible we could finally see a spending bill of some kind, as both the Democrats and Trump support the idea. This would be a massive tailwind for raw materials, commodities and energy.

Materials and construction services stocks—including Vulcan Materials, Martin Marietta Materials, Quanta Services and AECOM—jumped in response to the election outcome.

Can the new congress make infrastructure stocks great again
click to enlarge

As I’ve shared with you before, U.S. infrastructure is badly in need of a spit shine. Last year, the American Society of Civil Engineers (ASCE) gave the country’s roads, bridges and waterways a D+ while noting that there’s a $2 trillion infrastructure funding gap between now and 2025. Because this affects all Americans, it shouldn’t be turned into a partisan issue.

Another winner this week was the U.S. cannabis industry, which is expected to be worth some $75 billion by 2030, according to Cowen & Co. Michigan voted to legalize recreational marijuana, the 10th state to do so, while Missouri and Utah voters approved medical marijuana. Pot stocks, led by Canadian grower and distributor Tilray, surged on the news.

Tilray jumped nearly 6 percent on Tuesday, another 30 percent on Wednesday following the ouster of now-former Attorney General Jeff Sessions. As the head of the Department of Justice, Sessions strongly opposed legalization. Industry advocates hope the next permanent AG will be more open to relaxing federal law.

Oil Notched a 10th Straight Day of Losses

As recently as last month, it didn’t look as if anything could stop oil from heading even higher. Today, however, marked the 10th straight day of losses for West Texas Intermediate (WTI), as inventories continue to build and the U.S., Russia and Saudi Arabia produce at record or near-record levels.

Oil slipped into bear territory
click to enlarge

Down more than 20 percent from its recent high of $76 in early October, oil was trading below $60 a barrel today and is now considered to be in a bear market.

Although bad news for producers and refiners, lower oil prices are good for nearly everyone else, including net importer countries and airlines. As I told CNBC Asia’s Akiko Fuijita this week, when oil prices have fallen below their 50- and 200-day moving averages, quant traders especially have poured money into airlines.

Jets fyling high

It’s important to note, too, that demand remains very strong, outpacing capacity growth. According to a report by the International Air Transport Association (IATA) dated October 19, airline passenger load factor climbed to a 28-year high in August. Global load factor, a measure of an airline’s capacity usage, rose to 85.3 percent for the first time since 1990.

Watch my CNBC Asia interview by clicking here!

Indias booming economy expected to firm up gold demand

Gold Market

This week spot gold closed at $1,209.85, down $23.10 per ounce, or 1.87 percent. Gold stocks, as measured by the NYSE Arca Gold Miners Index, ended the week lower by 3.04 percent. The S&P/TSX Venture Index came in essentially flat for the week. The U.S. Trade-Weighted Dollar rose 0.38 percent.

Date Event Survey Actual Prior
Nov-8 Initial Jobless Claims 214k 214k 215k
Nov-8 FOMC Rate Decision (Upper Bound) 2.25% 2.25% 2.25%
Nov-9 PPI Final Demand YoY 2.5% 2.9% 2.6%
Nov-13 Germany CPI YoY 2.5% 2.5%
Nov-13 Germany ZEW Survey Current Situation 65.0 70.1
Nov-13 Germany ZEW Survey Expectations -25.0 -24.7
Nov-13 China Retail Sales YoY 9.2% 9.2%
Nov-14 CPI YoY 2.5% 2.3%
Nov-15 Initial Jobless Claims 215k 214k
Nov-16 Eurozone CPI Core YoY 1.1% 1.1%


  • The best performing metal this week was palladium, down 0.17 percent as hedge funds boosted their net bullish position to an eight-month high. October was a stellar month for gold after several months of losses. Holdings in gold-backed ETFs rose globally by 16.5 tonnes as the yellow metal benefitted from flight-to-safety investment flows tracking global stock markets, writes Financial Express. The month also marked the first in four of positive global inflows for gold-backed ETFs, as the bullion price rose 2.3 percent.
  • China, the world’s largest consumer of gold, continues to see demand rising. In the first three quarters of this year, the use of gold rose by 5.08 percent from a year ago to 849.7 tonnes, according to the China Gold Association. Jewelry sales contributed to nearly two thirds of total domestic consumption. The nation is also the number one gold producer, but has seen output fall 7.46 percent to just 289.75 tonnes in the first three quarters of this year. With demand rising and production falling, a tightening gold supply could lead to positive price movement. South Africa, once the world’s top miner of the yellow metal, has seen production retreat 19 percent from a year earlier, for the biggest plunge since 2015.
  • U.S. producer prices, as measured by the producer price index (PPI), rose by more than forecast in October to 2.9 percent higher from a year earlier, marking the biggest jump since 2012. Rising PPI, which measures wholesale and other selling prices at businesses, indicates that price pressures in the production pipeline are advancing steadily, writes Shobhana Chandra of Bloomberg. Core services inflation, which represents 75 percent of the core PCE price index, exhibits less volatility and is less influenced by U.S. dollar moves. This figure has been rising steadily since 2009 and is now at 2.9 percent year-over-year. Inflation has historically been positive for the price of gold.


  • The worst performing metal this week was silver, down 4.02 percent despite hedge funds cutting their bearish view to a 12-week low. Despite a brief rally, it looks as though optimism for gold has started to fade. Prices have fallen for six straight days, reports Bloomberg, making this the longest downward stretch since May 2017. In addition, gold took a hit after U.S. producer prices increased in October by the most since 2012. According to Tai Wong, head of base and precious metals trading at BMO Capital Markets, this “could be a signal inflation is starting to percolate,” prompting some to speculate the Federal Reserve will hike rates more aggressively.
  • Exchange traded funds that focus on commodities saw outflows this week, with precious metals ETFs leading the decline, reports Bloomberg. This is a reversal from last week when precious metals funds saw inflows of $414 million; this week, they had $224 million of losses. Declines were also seen in India, with gold imports dropping 42 percent in October, falling to 38.8 metric tons from 66.9 metric tons a year earlier.
  • Venezuela wants $550 million worth of gold back from the Bank of England, according to Reuters. In fact, Venezuelan authorities are attempting to repatriate 14 tons of gold bullion currently held at the Bank of England’s vault. According to Business Insider, the move is thought to be in response to recently announced sanctions by the U.S. aimed at disrupting the country’s exports – but the current economic crisis in Venezuela is also one of the prime motivating factors and the market is aware both Venezuela and Turkey have been gold sellers of late.


  • Jewelry disruptor Mené launched as a publicly-traded company on the Toronto Stock Exchange this week.  Since opening in January of this year, Mene has sold over 11,000 unique pieces of jewelry worth $7 million in 53 countries. Mené is changing the way consumers think about jewelry – shifting attitudes from a discretionary purchase to a precious metals investment that retains most of its original purchase value.  Gold and precious metal jewelry is only offered as 24 karat purity and is sold by its weight, plus a 10 percent markup to cover design and manufacturing costs. In addition, Mené guarantees it will repurchase the item at spot gold less a 10 percent discount. This model could disrupt the traditional western selling model of diluting the gold content by nearly 50 percent and putting perhaps a four-fold mark up to the value of the contained gold.
  • GFMS released price forecasts this week saying “there is scope for further price appreciation, but it does look as if this will be something of a long haul.” The consultant forecasts gold to average $1,224 per ounce, before rising to $1,285 next year on strong Chinese and global central bank demand. Jewelry demand in China accounts for 60 percent of consumption and could rise even further as the country moves through the gold jewelry demand curve. According to Goldman Sachs, China gold demand for jewelry could continue to increase for decades into the future. In U.S. midterms this week, Democrats took control of the House, which will likely stop further tax cuts and require the Fed to implement fewer rate hikes, weighing on the dollar. Commerzbank says that should President Donald Trump focus more on foreign policy, it could generate additional geopolitical uncertainty, providing a boost for gold.

China to move through steepest gold jewelry demand point over next few decades
click to enlarge

  • This week the World Gold Council (WGC) launched a data and insights tool, called Goldhub, to help investors better understand gold’s value as a strategic asset. WGC studies showed that a lack of data was a key reason for institutional investors for not investing in gold and believe that Goldhub will fill that gap. One of the features of the platform includes an interactive portfolio simulator that allows users to create virtual portfolios and compare their historical performance.


  • How much can the Fed raise interest rates and is it making a policy mistake? Bloomberg writes that if the Fed doesn’t slow or stop its unwind – of steadily reducing its holdings of Treasuries and mortgage-backed bonds – it could end up draining too much money from the banking system, which could cause volatility to surge and undermine its ability to control its rate setting policy. Priya Misra, head of global interest rate strategy at TD Securities, says that “the Fed is in denial” and that “if the Fed continues to let its balance-sheet runoff continue, then reserves will begin to become scarce.”
  • In October, hedge funds experienced their worst month since 2011 and clients have already pulled $11.1 billion so far this year. More redemptions are expected by November 15, which is the deadline for investors to put managers on notice to get some of all of their money back at year end, writes Bloomberg.
  • A former JPMorgan precious metals trader admitted this year that he had engaged in a spoofing scheme for six years that defrauded investors in gold, silver, platinum and palladium futures contracts, writes Zero Hedge. This is possibly the first major gold-bank trader coming clean about market manipulation that has long been suspected of occurring. There was once a time when the mere mention on gold manipulation would have branded someone as a conspiracy theorist, but more and more accounts of actual manipulation have come to light so far this year.

How government policies affect golds fear trade

Index Summary

  • The major market indices finished up this week. The Dow Jones Industrial Average gained 2.84 percent. The S&P 500 Stock Index rose 2.13 percent, while the Nasdaq Composite climbed 0.68 percent. The Russell 2000 small capitalization index gained 0.10 percent this week.
  • The Hang Seng Composite fell 3.29 percent this week; while Taiwan was down 0.77 percent and the KOSPI fell 0.47 percent.
  • The 10-year Treasury bond yield fell 2 basis points to 3.19 percent.

Domestic Equity Market

SP 500 Economic Sectors weekly performance
click to enlarge


  • Health care was the best performing sector of the week, increasing by 4.01 percent versus an overall increase of 2.13 percent for the S&P 500.
  • TripAdvisor was the best performing stock for the week, increasing 18.03 percent.
  • Cannabis producer Tilray gained more than 30 percent on Wednesday after Michigan became the 10th U.S. state to legalize marijuana. Another contributing factor to the stock’s bounce was Jeff Sessions, a staunch opponent of legal weed, resigning as U.S. attorney general.


  • Communication services was the worst performing sector for the week, decreasing by 0.20 percent versus an overall increase of 2.13 percent for the S&P 500.
  • Coty was the worst performing stock for the week, falling 22.75 percent.
  • Shares of Activision Blizzard plunged 10 percent in after-hours trading after reporting its third straight quarterly decline in monthly active users, reports CNBC. The video game company reported 345 million monthly active users, which is a drop from 352 million in the previous quarter. Activision Blizzard owns the Call of Duty and World of Warcraft franchises.


  • Shares of medical companies jumped as a repeal of the Affordable Care Act, or other measures that could reduce medical costs, aren’t likely following the election results. On top of that, three states passed measures to expand Medicaid programs this week. Health insurers rose to record highs, with Humana gaining 6.62 percent and UnitedHealth Group gaining 4.17 percent. On Wednesday, California rejected a cap on dialysis revenue, causing shares of DaVita to surge as well.
  • Thanks to its Marvel sequel "Ant Man and the Wasp," along with an increased number of visitors to its parks, Disney beat on profit and revenue, reports Business Insider. The company also revealed new details about its Netflix competitor, Disney+, including Star Wars and Marvel TV shows. Disney CEO Bob Iger confirmed this week that a television prequel series to "Rogue One" and a spinoff series about the Marvel villain Loki are both in development.
  • Google announced the hiring of Geisinger Health CEO David Feinberg to lead its health care initiatives, reports the Wall Street Journal. In an effort to expand its presence in the industry, Google has been hiring health care executives like Feinberg, who will also be involved with work in artificial intelligence and devices.


  • Shares of Coty, a cosmetic maker, tumbled after the cosmetics maker reported disappointing revenue in its first quarter earnings report, blaming supply chain issues. As a result, the stock fell 22.1 percent. The Cover Girl parent said that organic revenue, which strips out the impact of acquisitions and divestitures, was down 7.7 percent, while overall revenue fell 9.2 percent.
  • Riot Games, the company behind one of the biggest video games in the world, was just slammed with a lawsuit alleging its "bro-culture" created a sexist workplace, writes Business Insider. A class-action lawsuit against the company claims it harbored a sexist work environment with women suffering from unequal pay and harassment.
  • Boeing has issued a bulletin for its 737 Max customers following preliminary findings from the recent Lion Air crash in Indonesia, reports Bloomberg. The warning notes erroneous cockpit readings that could make the passenger jet "aggressively dive."

The Economy and Bond Market



  • The Federal Reserve held its key interest rate in a range between 2 percent and 2.25 percent at the conclusion of its two-day meeting on Thursday. It also signaled it would continue raising rates gradually amid stable economic growth.
  • In the latest sign of a booming job market, the Labor Department said unemployment claims remained near four-and-a-half decade lows last week, dropping by a thousand to a seasonally adjusted 214,000.
  • A preliminary reading on consumer sentiment for November released on Friday came in slightly above expectations. The University of Michigan’s consumer sentiment index hit 98.3. The index is on pace for its strongest year since 2000, Surveys of Consumers Chief Economist Richard Curtin said.


  • Soybean inventories are piling up amid the U.S.-China trade battle. The Department of Agriculture on Thursday lowered its projections for soybean exports by 160 million bushels to 1.9 billion for the 2018-2019 marketing year as China has turned to South America and elsewhere for the crop during its trade war with the U.S.
  • Data from UBS shows the $34 billion worth of Chinese goods affected by the initial tariffs have seen imports to the U.S. fall by 30 percent.
  • Companies with debt coming due face higher interest rates to refinance. The industry most exposed to higher refinancing costs is autos, followed by retail, insurance and tech, according to analysis from CreditSights.


  • According to JPMorgan, the Sharpe ratio for U.S. Treasuries is now meaningfully higher than that for U.S. stocks for the first time in a decade.
  • Next Wednesday, the 12-month rate of the consumer price index (CPI) is forecast to inch up by 0.2 percentage points to 2.5 percent in October, but the core rate is expected to stay unchanged at 2.2 percent.
  • Next Thursday, October retail sales are forecast to point to a solid start to the fourth quarter, increasing by 0.5 percent month-over-month, which would be an improvement on the previous 0.1 percent rate.


  • Some of the most interest-rate-sensitive U.S. stocks are showing “a clear sign that the market is worried” about Federal Reserve policy, according to Andrew Garthwaite, a global strategist at Credit Suisse. Garthwaite compared a ratio of bank and utility shares with the yield on 10-year Treasury notes in a report Monday. The ratio between the S&P 500 Index’s industry gauges for the two groups fell 19 percent through Monday from a 10-year high, set March 9, as the 10-year yield rose 0.3 percentage point to 3.20 percent.

U.S. bank, utility stock ratio signals policy concern to credit suisse
click to enlarge

  • Former U.S. Treasury secretary Hank Paulson has warned of an “economic iron curtain” dividing the world if the U.S. and China fail to resolve their burgeoning strategic differences. Referring to the "unprecedented political pressure on cross-national supply chains" and "great power competition surges" across the Indo-Pacific, Paulson warned of a once-healthy strategic competition tipping into "a full-blown cold war."
  • On Friday, the main release to watch will be industrial production figures for October. Investors will be paying attention to any trade related headwinds.

Energy and Natural Resources Market



  • Natural gas was the best performing major commodity this week rising 13.4 percent. The commodity rallied to a near two-year high as a large swath of America cools down.
  • The best performing sector this week was the S&P 1500 Fertilizers & Agricultural Chemicals Index. The index rose 7.8 percent after Mosaic and Nutrien hiked guidance, citing a strong macro backdrop for agricultural commodities.
  • The best performing stock for the week was Vestas Wind Systems A/S. The Danish manufacturer of wind turbines rose 17.6 percent despite missing analyst earnings forecasts. The company highlighted strong selling prices and orders intake, setting the company for a strong 2019.


  • Coal was the worst performing commodity this week. The commodity dropped 5.1 percent after China has built the largest coal stockpiles in more than three years.
  • The worst performing sector this week was the S&P 1500 Paper & Forest Products Index. The index dropped 5.0 percent after a number of index constituents reported earnings below estimates, citing cost increases. 
  • The worst performing stock for the week was Thyssenkrupp AG. The major German steel producer dropped 9.9 percent to a 52-week low after cutting its profit forecast, and warning there could be “substantial adverse consequences” because of a German investigation into steel-price fixing.


  • China is looking to re-stimulate its economy. According to Wolfe Research, China has started to ramp up credit growth once again in order to meet growth targets, alleviate some pressure on its currency, and stem capital outflows. “Looking ahead, we’ve become more bullish on China’s intermediate-term outlook, given our sense that 1) near-term stimulus is likely to provide some economic tailwinds and 2) policymakers are heavily incentivized to reach a trade agreement with the U.S. sooner rather than later,” stated Wolfe.

China: Manufacturing PMI vs Credit Impulse Index
click to enlarge

  • China’s oil imports rose to a record 9.65 million barrels a day in October. The signal is overall positive for commodities, says Goldman Sachs, adding that it expects commodities to rally strongly. The bank also expects deficits in the global crude oil market, and resilient demand from China’s metals importers.
  • The U.S. dollar downtrend can resume now that the midterm elections are over, says Bloomberg. A bearish narrative for the U.S. dollar is forming, resulting from data showing declining economic confidence, as well as weaker Chicago and ISM PMI readings. In addition, prospects for further fiscal stimulus and potential dollar repatriation have vanished, while commentators expect greater volatility from a divided congress.


  • Oil headed for its longest losing streak in 20 months as investors considered the effect of waivers. China will be allowed to buy Iranian crude for six months, together with India and other Asian nations.
  • U.S. soybean profits are going up in smoke, says Bloomberg. Farmers may be forced to swap crops if the trade war is not resolved shortly as China has shifted over to Brazil to secure its soybean needs.
  • China’s copper imports slid 19 percent to 423,000 metric tons in October from a month earlier as demand fell before winter. Similarly, iron ore imports dropped 5.4 percent, and steel imports dropped to the lowest since February.

Emerging Europe



  • Greece was the best performing country this week, gaining 3.9 percent. Eurobank Ergasias SA was the best performing equity trading on the Athens stock exchange, gaining more than 18 percent in the past five days. Eurobank announced that it has completed an agreement with Piraeus Bank SA to acquire Piraeus’s Bulgarian unit, Piraeus Bank Bulgaria.
  • The Polish zloty was the best performing currency this week, gaining 2 basis points again the U.S. dollar. While regional peers and global central banks started to hike interest rates, Poland’s central bank left its main rate unchanged at 1.5 percent. Governor Adam Glapinski sees no reason to expect tightening in 2019.
  • Financial was the best performing sector among eastern European markets this week.


  • Turkey was the worst performing country this week, losing 1.4 percent. Moody’s said that the Turkish economy would likely contract in the first half of next year on the lira’s weakness and rising borrowing costs. In 2019, Turkey’s GDP will slip to 40 basis points, down from 3.5 percent growth this year, according to the rating agency.
  • The Russian ruble was the worst performing currency this week, losing 2.7 percent against the U.S. dollar. The currency is under pressure due to the threat of further sanctions from the U.S. and falling oil prices. Crude oil lost 4.4 percent this week, closing below $70 per barrel.
  • Information technology was the worst performing sector among eastern European markets this week. 


  • The Eurozone final service and composite PMI reading for October improved from initial readings. The final service PMI was reported at 53.7 versus 53.3, and the composite PMI was revised upward to 53.1 from 52.7. Looking at individual countries, Spain and Germany saw their PMIs improve, while Italy and France worsened.
  • Treasury Finance Minister of Turkey, Berat Albayrak, believes that the country’s inflation, which stood at 25.2 percent in October, has peaked and will start to decline this month and next. The weakening lira has been the main contributor to spiking local prices. The lira has gained 32 percent against the dollar since mid-August, but year-to-date it is still down 29 percent, the second worst performing currency after the Argentine peso.
  • According to an article published in the Wall Street Journal, Russia will benefit from the ban on Iranian oil that went into effect on Monday. Russian oil companies have stepped in, stealing customers from Iran as both countries produce similar grade of crude, making a switch by refiners relatively easy. Russia is also less vulnerable to U.S. sanctions, because it is already under sanctions and its economy and financial system are not linked closely to that of the U.S.


  • Turkish equites trading on the Istanbul stock exchange have been moving higher since mid-August. However, despite the recent stock rebound, the country is still the most vulnerable emerging market, with inflation the highest among peers, just after Argentina. Additionally, Turkey’s projected current-account deficit is the widest, according to an analysis by Bloomberg Economics.
  • This week the Financial Times discussed how companies seeking to launch IPOs in Europe are giving up on the process unusually often, which reflects a sickly environment for listings and wobbly confidence among investors. Citing Dealogic data, the Financial Times says that so far this year, 14 new listings across Europe worth $250M or more have been pulled, almost a quarter of total listings.
  • Tatiana Orlova, an economist at Emerginomics in London, said that a Republican win in U.S. midterm elections is better for Russia, as Democrats seem to believe that Russia is the main threat to American security, while Republicans are focused on a standoff with China. The second round of sanctions on Russia for poisoning a British agent earlier this year may be coming out soon. With a now split government in the U.S., the administration needs to decide how harsh the new sanctions will be. The ruble may sell off again, which happened earlier this year in both April and August when additional sanctions were announced against Russia.

sanction fears have been behind the biggest moves in the ruble this year
click to enlarge

how much do you know about diwali explore the slideshow to find out

China Region



  • India’s SENSEX and NIFTY indices bucked the regional trend to a degree and closed up 52 and 39 basis points of total return for the week, respectively, as the nation celebrated the Diwali festival on Wednesday.
  • The Hang Seng Composite Energy Index also bucked the week’s final numbers for the Hang Seng Composite (HSCI) itself and closed up 70 basis points, the only sector in the index to close in the green for the period.
  • Indonesia’s third quarter GDP readings came in just a touch better than expectations, with a quarter-over-quarter growth rate of 3.09 percent and a year-over-year growth rate of 5.17 percent.


  • The Hang Seng Composite declined 3.29 percent for the week, and the Shanghai Composite fell by 2.9 percent.
  • The Caixin China Services PMI missed expectations, coming in at 50.8, well below an anticipated 52.8 print and down from last month’s reading of 53.1.

Chinas October purchasing managers index data
click to enlarge

  • China’s FX reserves number for the October reading declined to $3.053 trillion from $3.087 trillion in September, slightly below analysts’ estimates.


  • China received a waiver from the U.S. to continue purchasing Iranian oil for up to some 360,000 bpd for the next 180 days. India, too, was exempted, for 300,000 bpd, while Japan and South Korea also received exemptions, among others.
  • While the pace of overall growth slowed—a common refrain of late in regard to China data—it remains noteworthy that opportunities are still abound in China (especially over the long term), which is indeed another common refrain, and one not to be forgotten. Foreign banks’ mainland China exposure exceeded $2 trillion for the first time in the first half of the year, Fitch said this week.
  • Bloomberg News reported this week that China’s securities regulator will set different requirements on profitability and ownership for companies applying to list shares on Shanghai’s new high-tech board. The Shanghai Stock Exchange is expected to establish a trial period for the board.


  • Car sales in China declined for a fifth consecutive month, Bloomberg reported this week. Retail sales of sedans, multi-purpose vehicles and SUVs dropped 13.2 percent to 1.98 million units in October, and 10-month sales fell by 2.5 percent, the China Passenger Car Association said.
  • North Korean progress seems to have slowed this week as Secretary of State Mike Pompeo did not end up meeting his North Korean counterpart Kim Yong Chol in New York. The State Department reportedly says the talks will be rescheduled for some unknown later time. Bloomberg News notes that the delay may be a new sign of potential tension as North Korea’s Kim Jong Un seeks sanctions relief before taking more concrete disarmament steps.
  • Philippine inflation stayed high for the latest print, clocking in at 6.7 percent for the October measurement period, the same as September’s reading. Philippine exports fell 2.6 percent, even as imports climbed 26 percent year-over-year for the September period.

Blockchain and Digital Currencies



  • Of the cryptocurrencies tracked by CoinMarketCap, the best performing for the week ended November 9 was Peerplays, up 164.58 percent. On Wednesday, the price of bitcoin moved higher, trading above $6,500 for the first time since mid-October and pulling the market cap for all digital currencies above $220 billion for the first time in a month, reports MarketWatch.
  • Long-term trend lines in bitcoin’s Directional Movement Index (DMI) are showing that the digital currency is entering into a new bullish phase, reports Bloomberg. Not only that, its price trends broke out of their VERA upper limit, another sign that is widely considered encouraging.
  • Bitcoin has traded in a “remarkably stable pattern” for five trading sessions, from October 30 to November 3, reports Seeking Alpha. The same is true for bitcoin futures, the article continues, noting that October 26 was the least volatile day since futures were introduced, a positive sign for the volatile industry.


  • Of the cryptocurrencies tracked by CoinMarketCap, the worst performing for the week ended November 9 was DEX, down 74.84 percent.
  • According to a new research paper for the Nature International Journal of Science, the amount of energy required to mine bitcoin is considerably higher than that of physical gold, reports MarketWatch. To be more specific, the cost to mine $1 of bitcoin is more than three times the cost to mine $1 of gold. The surge in mining costs is a result of hash rates, the article continues, which is a measure of a miners’ performance. The research paper goes on to explain that hash rates for three of the four main cryptocurrencies have trended upward consistently, suggesting energy requirements will continue to increase.

mining bitcoin costs more than mining gold, study finds
click to enlarge

  • A handful of Twitter accounts were compromised at the start of the week, reports Coindesk, including those owned by a U.S. lawmaker, a film company and even Tesla founder Elon Musk. “Each of the compromised accounts engaged in a well-known crypto giveaway scam by promising to send large amounts of bitcoin to any users who sent them small amounts first,” the article continues.


  • The U.S. Securities and Exchange Commission (SEC) plans to release “plain English” guidance on when and how cryptocurrencies may be classified as securities, reports Coindesk. During a D.C. Fintech Week conference on Monday, SEC director of Corporation Finance William Hinman explained that although it is not clear when this guidance will be published, it should assist developers in determining whether or not a potential token offering can be classified as a security.
  • At the China International Import Expo in Shanghai this week, nine major terminal operators and shipping companies signed a Memorandum of Understanding to create an open digital platform based on distributed ledger technology, Coin Telegraph reports. This is a step toward forming a shipping industry blockchain alliance to allow shippers to digitize and organize their documents, plus automatically connect with other parties to streamline the process. This alliance would involve global shipping giants such as PSA International and Shanghai International Port Group.
  • According to Anatoliy Aksakov, chair of the State Duma Committee on Financial Markets, Russia might be releasing a stable coin version of the ruble fiat currency once laws are passed on cryptocurrency industry regulation. Aksakov said that it’ll be “the same ruble, only encrypted to serve the money turnover between blockchain participants…like you deposit 100,000 rubles with a bank and get 100,000 crypto rubles to purchase blockchain-based products and services.”


  • A new West Virginia program will allow certain voters serving abroad in the military to cast their votes from their mobile phones using blockchain technology, reports MarketWatch. While this may sound like an “ideal remedy for trust problems,” scholars who have studied blockchain-based voting say there are still threats. In the article, experts on election security note the following concerns with using blockchain: computers can break or be broken, adversaries are looking for opportunities, and blockchains depend on computing devices.
  • Peter Szilagyi, an ethereum core developer, told CoinDesk in an interview that “people don’t realize how much information is out in the open” and that little attention has been paid to ethereum’s underlying network layer, where information is exposed in complex and unpredictable ways. Szilagyi explains that interactions with ethereum can reveal user location data and that it is essential to fix in order to protect users from external attacks, but also to “protect users from ourselves too.”
  • The U.S. Securities and Exchange Commission (SEC) charged the founder of crypto token trading platform EtherDelta, Zachary Coburn, with operating an unregistered securities exchange. Coburn settled, neither admitting nor denying the charge, paying over $380,000. CoinDesk writes that crypto trading platforms have become a significant priority for the SEC’s enforcement division and that token exchanges should expect to be targeted.

Frank Talk Insight for Investors
November 9, 2018
Diwali Kick-Starts Gold’s Love Trade
November 7, 2018
India’s Booming Economy Expected to Firm Up Gold Demand
November 5, 2018
The "Black Swan" Author Just Issued a Powerful Warning About Global Debt
A Blog by Frank Holmes, C.E.O. and Chief Investment Officer

Leaders and Laggards

Weekly Performance
Index Close Weekly
S&P/TSX Global Gold Index 162.00 -4.28 -2.57%
Gold Futures 1,210.10 -23.20 -1.88%
Natural Gas Futures 3.73 +0.44 +13.43%
S&P/TSX VENTURE COMP IDX 651.42 +0.07 +0.01%
10-Yr Treasury Bond 3.19 -0.03 -0.87%
Nasdaq 7,406.90 +49.91 +0.68%
Oil Futures 59.81 -3.33 -5.27%
Hang Seng Composite Index 3,450.22 -117.39 -3.29%
S&P 500 2,781.01 +57.95 +2.13%
DJIA 25,989.30 +718.47 +2.84%
Korean KOSPI Index 2,086.09 -9.91 -0.47%
Russell 2000 1,549.49 +1.51 +0.10%
S&P Energy 505.68 +4.69 +0.94%
S&P Basic Materials 343.86 +6.29 +1.86%
XAU 64.16 -3.03 -4.51%


Monthly Performance
Index Close Monthly
Natural Gas Futures 3.73 +0.44 +13.43%
S&P/TSX Global Gold Index 162.00 +4.10 +2.60%
10-Yr Treasury Bond 3.19 +0.02 +0.66%
Oil Futures 59.81 -13.36 -18.26%
Gold Futures 1,210.10 +16.70 +1.40%
S&P 500 2,781.01 +6.99 +0.25%
S&P Energy 505.68 -50.36 -9.06%
Hang Seng Composite Index 3,450.22 -80.67 -2.28%
DJIA 25,989.30 +390.56 +1.53%
Korean KOSPI Index 2,086.09 -142.52 -6.40%
Nasdaq 7,406.90 -15.15 -0.20%
S&P Basic Materials 343.86 +3.73 +1.10%
Russell 2000 1,549.49 -25.92 -1.65%
S&P/TSX VENTURE COMP IDX 651.42 -41.14 -5.94%
XAU 64.16 -1.35 -2.06%


Quarterly Performance
Index Close Quarterly
Natural Gas Futures 3.73 +0.77 +26.06%
10-Yr Treasury Bond 3.19 +0.26 +8.81%
DJIA 25,989.30 +480.07 +1.88%
Oil Futures 59.81 -7.00 -10.48%
S&P 500 2,781.01 -72.57 -2.54%
Gold Futures 1,210.10 -9.80 -0.80%
S&P Energy 505.68 -47.02 -8.51%
Nasdaq 7,406.90 -484.88 -6.14%
Korean KOSPI Index 2,086.09 -217.62 -9.45%
S&P Basic Materials 343.86 -29.44 -7.89%
Russell 2000 1,549.49 -141.39 -8.36%
Hang Seng Composite Index 3,450.22 -456.12 -11.68%
S&P/TSX Global Gold Index 162.00 -13.84 -7.87%
S&P/TSX VENTURE COMP IDX 651.42 -48.27 -6.90%
XAU 64.16 -10.30 -13.83%


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 (09/30/2018):

Eurobank Ergasias SA
Piraeus Bank SA
Nutrien Ld
Vestas Wind Systems A/S
Mene Inc
Boeing Co/The


*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 Directional Movement Index (DMI) is a momentum indicator that was developed by J. Welles Wilder. The DMI is actually part of a series of technical indicators developed by Wilder, so some trading platforms split up the indicators, providing Directional Movement as one indicator and ADX as another. The S&P 500 Fertilizers & Agricultural Chemicals 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 Supercomposite Paper & Forest Products Index is a capitalization-weighted index. The index was developed with a base value of 100 as of December 30, 1994. The Producer Price Index (PPI) measures prices received by producers at the first commercial sale. The index measures goods at three stages of production: finished, intermediate and crude. The personal consumption expenditure (PCE) price index is an indicator of the average increase in prices for all domestic personal consumption. The Sharpe ratio is a measure that indicates the average return minus the risk-free return divided by the standard deviation of return on an investment. The S&P BSE SENSEX, also called the BSE 30 or simply the SENSEX, is a free-float market-weighted stock market index of 30 well-established and financially sound companies listed on Bombay Stock Exchange. The NIFTY 50 index is National Stock Exchange of India’s benchmark broad based stock market index for the Indian equity market. Full form of NIFTY is National Stock Exchange Fifty. It represents the weighted average of 50 Indian company stocks in 12 sectors and is one of the two main stock indices used in India. The Shanghai Stock Exchange Composite Index is a capitalization-weighted index. The index tracks the daily price performance of all A-shares and B-shares listed on the Shanghai Stock Exchange.