What Maslow and Rand Would Tell Investors Today

I have always been fascinated by what motivates people. What motivates Tiger Woods to pursue the goal of being the world’s greatest golfer? What’s the motivation driving Warren Buffett to continue purchasing companies instead of retiring in Tahiti? Or how about the motivation behind the trucks allegedly packed with euros parked in front of the Central Bank in Nicosia?

What is most puzzling is the motivation driving investors to buy or sell their equity positions when research shows that holding an investment over the long-term is more successful than timing the market.

As Business Insider puts it, there’s “proof that [investors] stink at investing.” Its headline is catchy, and the chart shows the evidence, as the average investor has significantly underperformed oil, stocks, gold and bonds in the past 20 years. While, on average, investors returned 2 percent, oil, stocks and gold rose about 8 percent.

After inflation, the average Joe or Jill actually lost money.

The Average Investor Underperforms Oil, Stocks and Gold

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You can easily attribute the meager returns to the emotional rollercoaster that drives buying and selling decisions, but to break the pattern of poor performance, it may be better to understand the motivation occurring on a subconscious level.

Anyone who sat in on a psychology course in university is likely familiar with Abraham Maslow’s classic hierarchy of needs driving human motivation. The most fundamental need is shown at the base of the pyramid. Our physiological needs for food, water, shelter and warmth are of the highest priority. Only after those needs are met, we try to meet our need for safety. After that, we can move to belonging, then our own self-esteem and, only until we feel confident that all those needs are met, can we achieve fulfillment or self-actualization.

Maslow's Hierarchy of Needs

I have to thank Christine Comaford, the dynamic presenter and global thought leader on corporate culture and performance optimization, for my proverbial light bulb moment when I connected Maslow’s observations from the 1940s to investors’ reactions to global events today.

I love learning about neuroscience and behavioral finance, so I looked forward to her presentation at a global leadership conference for CEOs that I attended in Turkey. But when I walked into the room, I was impressed with how many like-minded executives were interested in her research and insights.

These executives want to understand why customers buy certain products, why investors sell equities to buy bonds, and why their employees don’t seem to have a level of engagement they once had. Also, I believe leaders want to understand why people don’t feel secure or safe these days.

In a recent post in Forbes, Christine stresses how important it is for people to feel safe, to feel as if they belong and to feel as if they matter before they can get to what she calls the “smart state.” This state is when people have access to all parts of the brain and can respond from choice, rather than the “critter brain,” when one simply reacts in one of three ways: fight, flight or freeze.

The needs for people to feel safe, feel like they belong and feel like they matter “are programmed into their subconscious so powerfully that they literally crave them,” she says.

Her discussion particularly resonates with me today, as I believe governments’ actions around the developed world have perpetuated this lack of feeling safe, inhibiting investors from moving up Maslow’s Hierarchy of Needs and preventing their portfolios from achieving the outstanding returns offered by oil, gold and stocks over the past 20 years.

Now, with the most recent drama created by the triangular powers of the Cyprus parliament, the International Monetary Fund and the European Union, news of Cyprus’ bank seizures is sending shock waves rippling across the entire world. How can investors feel safe when governments have the audacity to confiscate their money?

Ayn Rand warned of such actions in her book, “Atlas Shrugged.” Here’s a snippet that is particularly appropriate today:

“Whenever destroyers appear among men, they start by destroying money, for money is men's protection and the base of a moral existence. Destroyers seize gold and leave to its owners a counterfeit pile of paper. This kills all objective standards and delivers men into the arbitrary power of an arbitrary setter of values.”

And to her, gold was the objective value, “an equivalent of wealth produced,” as paper is only “a mortgage on wealth that does not exist.”

This is precisely why many gold investors were disappointed that the yellow metal didn’t perform well. While gold’s performance in the short term has been counterintuitive, I plan to stick to my own advice. I simply feel safer with a small weighting in gold as insurance.

Happy Holidays!

With Spring upon us, we welcome in a season of renewal and celebration of life, as millions of people around the world celebrate Easter and Passover. To all our shareholders, friends and families, we wish you a very happy holiday.

Index Summary

  • The major market indices finished higher this week. The Dow Jones Industrial Average rose 1.09 percent. The S&P 500 Stock Index climbed 1.51 percent, while the Nasdaq Composite gained 1.39 percent. The Russell 2000 small capitalization index rose 0.81 percent this week.
  • The Hang Seng Composite Index fell 0.06 percent; Taiwan rose 0.70 percent and the KOSPI gained 2.19 percent.
  • The 10-year Treasury bond yield fell 6 basis points this week, to 1.85 percent.

Domestic Equity Market

The S&P 500 continued its strong run and rose to the highest levels since late 2007. The healthcare and utilities sectors led the way and were far and away the best performers. Traditionally defensive areas have outperformed this year and that trend continued this week.

Domestic Equity Market - U.S. Global Investors

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  • The healthcare sector was led by biotech stalwarts Biogen Idec, Gilead Sciences, and Amgen.
  • Thirty of the 31 companies in the S&P 500 Utilities Index moved higher this week as investors continue to favor dividend payers with U.S.-centric revenue exposure.
  • GameStop jumped 9 percent and was the best performer in the S&P 500 after reporting fourth-quarter earnings that topped analysts’ forecasts. The company showed better-than-expected strength in digital and mobile games.


  • Apple fell by 4.2 percent, reversing gains from last week.
  • First Solar fell 6.5 percent, giving up the bulk of its gains from last week.
  • Cliffs Natural Resources declined 8.4 percent this week on continued downgrades from industry analysts, related to global iron ore pricing.


  • The market continues to be resilient regardless of the news out of Europe and the market is climbing the proverbial wall of worry.
  • The Federal Reserve Bank stated that it intends to maintain its asset purchase program in order to further stimulate job growth and boost the economy.


  • A market consolidation wouldn’t be a surprise after a strong start to the year.

The Economy and Bond Market

Treasury yields fell for the third week in a row following continued uncertainty in Europe, even though a revised plan for Cyprus was put in place and banks reopened on Thursday to relative calm. Economic data was generally weaker than expected, which also likely played a role in sending yields lower. A good example is consumer confidence which came in well below estimates and somewhat surprisingly has just bounced around in a range for more than a year. Beginning-of-the-year tax increases and the sequestration continue to weigh on consumer confidence.

Consumer Confidence

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  • Europe avoided a larger crisis by coming to a resolution on the Cyprus banking system, but the process does not instill a lot of confidence.
  • The Case-Shiller 20-city price index rose 8.1 percent versus a year ago in January. Signs that the housing market continues to recover are very supportive of continued economic expansion.
  • Durable goods orders rose 5.7 percent in February on a spike in aircraft orders.


  • Consumer confidence fell sharply in March as the economy lacks alacrity.
  • Eurozone economic sentiment also fell in March after seeing steady improvement in recent months.
  • Initial jobless claims rose to 357,000 this week, reversing a recent trend of better numbers.


  • The Fed continues to remain committed to an extremely accommodative policy.
  • Key global central bankers are still in easing mode such as the European Central Bank (ECB), Bank of England and the Bank of Japan. The Bank of Japan in particular appears willing to implement additional monetary policy easing in the near future.


  • The economy appears to be gaining momentum. The risk for bondholders is that this trend continues and bonds sell off.
  • Inflation in some corners of the globe is getting the attention of policy makers and may be an early indicator for the rest of the world.

Gold Market

For the week, spot gold closed at $1,596.82, down 18.06 per ounce, or 1.12 percent. Gold stocks, as measured by the NYSE Arca Gold Miners Index, lost 1.42 percent. The U.S. Trade-Weighted Dollar Index gained 0.29 percent for the week.


  • Agnico-Eagle Mines has agreed to acquire all the issued and outstanding common shares of Urastar Gold for 0.25 Canadian dollars per share. The agreed price represents a 42.9 percent premium over the closing price of Urastar’s shares on March 25. We see the recent increase in M&A activity in the sector as proof that junior miners and explorers are trading well below their intrinsic values. The “housing collapse” we have seen recently in the sector has left some truly valuable assets unloved and unappreciated, providing for a great opportunity to pick them up and benefit from a higher resale value.
  • NGEx Resources reported initial results from this quarter’s drilling program at the Josemaria copper-gold porphyry project in San Juan Province, Argentina. The big news is a series of 100m step out hits of 230.5 meters of 0.62 percent copper and 0.24 grams per ton of gold. This result works to extend the enriched zone to the north by roughly 100 meters and suggests the resource may extend deeper in this new area.
  • David Zervos of Jefferies recently wrote to justify his position to stay away from equity markets. Zervos acknowledges he told investors to ignore the sequester and the Italian election, but the Cyprus situation is much more worrisome in his opinion. He argues that investors may miss out on a one or two percent rise in the market overall, but the tail risk is too difficult to quantify and the chances of a setback look more like 30 to 40 percent. Zervos has been a fan of protecting one’s wealth through diversification into hard assets.


  • Newcrest Mining dropped its full year 2012-2013 production guidance from 2.15 million gold ounces to 2 million ounces. The previous guidance will not be achievable as the company faces restricted capacity at its Lihir operation, following the shutdown of one of its four autoclaves for repairs. Furthermore, the company has been dealing with soft ground conditions at its Gosowong mine, which has prevented access to the higher grade ore. The company has lost more than 8 percent of its market capitalization following the news.
  • Allied Navada Gold is replacing its CEO Scott Caldwell with current Chairman Bob Buchan. It appears the board of directors was not satisfied with Mr. Caldwell’s management of the expansion at the Hycroft mine. In the board’s opinion, Mr. Buchan will lead to a better-performing operation at Hycroft, together with a more efficient expansion process. Investors do not appear to be satisfied with the news as they sold off the company as much as 8.6 percent intraday on Thursday.
  • Novagold Resources announced the appointment of ex-Barrick employee Richard Williams as Vice President of Engineering to head development at its flagship Donlin project in Alaska, as well as its Galore project in British Columbia. Despite the fact that Mr. Williams spent over 30 years with Barrick working in some of its flagship projects, investors may not be convinced of the value creation of his arrival, given that Novagold’s shares traded down as much as 6.5 percent intraday on Thursday.


  • The “housing collapse” scenario we alluded to above, to put the fall of the gold miner stocks in perspective, is something that should resonate with investors that look for repeatable patterns that they can profit from. Nobody appears to be paying attention to the string of corporate activity that is gradually gathering force. There are a number of truly valuable junior and mid-tier gold assets that are unloved and unappreciated, thus providing for a great opportunity to pick them up and benefit from a higher resale value.
  • As if the Cyprus debate had not given savers enough to fear, Eurogroup’s Jeroen Dijsselbloem sent markets into a downward spiral when he stated that the Cyprus bank restructuring plan should be seen as a template for the rest of the Eurozone. The harsh rebuttals forced him to retract his statement, but the damage had been done. Investors around the world now know that the next EU bailout will certainly take a similar form as the Cyprus one. After all, politicians in countries like Germany and the Netherlands (where Dijsselbloem is from) are finding it harder to justify bailouts to their electorates. We interpret Dijsselbloem’s statement as an open invitation to withdraw - without delay - any savings in the bank and invest them in hard assets, especially gold.
  • In his Wednesday letter to subscribers, David Rosenberg comments on the failure of the two latest periods in which the Fed attempted to create prosperity through the illusion of paper wealth. He argues that both of these attempts aimed to spur consumer spending relying on asset inflation, rather than driving economic growth by way of promoting savings and investment. He reflects on this issue, as it appears the Fed may be under new leadership next year, with Janet Yellen as the most likely candidate to follow Bernanke. The street believes Yellen has an inclination to be more expansionary than Bernanke, and perhaps even brave enough to pursue a nominal GDP-targeting policy. The longer the faucet keeps going, the more bullish the case for gold.


  • Metals consultancy CPM Group argues in this year’s Gold Yearbook that the bull-run for gold already ended in 2011, despite gold’s 6.2 percent gain in 2012. In its opinion, the bullish news gold bugs have been holding onto for the last twelve months, namely sovereign gold purchases and a hypothetical increase of gold’s role under Basel III, have been largely exaggerated or misinterpreted.
  • John Thornton received $17 million in compensation for 2012 for his role as co-Chairman of Barrick Gold. This amount includes a one-off $11.9 million signing bonus in cash, meant for him to purchase shares of the company in the open market, in what we believe is a strategy to align his personal interests with those of the company. While we applaud the move by Barrick to compel Mr. Thornton to use the totality of his bonus for stock purchases, we believe it shows very poor corporate governance to pay directors and executives this handsomely when the company’s stock plunges nearly 25 percent during the year in question.
  • The long-time friendly mining jurisdiction of Nevada is considering giving a blow to mining producers in the state. The 5 percent cap on net proceed taxes paid by miners is at risk of being lifted, exposing companies to higher tax rates. The move seeks to fund cash-starved local governments, and revenue-desperate school districts. The Nevada State Committee unanimously approved the proposal which will go to Nevada Legislature before heading to a sort of referendum. The proposal, set to raise an estimated $600 to $800 million, would not be implemented before 2015.

Energy and Natural Resources Market

Copper vx. S&P 500 Index

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  • Oil production in Texas’ Eagle Ford shale formation climbed 50 percent in January versus a year earlier. Growing production out of Eagle Ford is helping fuel a renaissance in Texas crude. The state produced 2.22 million barrels a day in December, the highest monthly level since June 1986, according to the U.S. Energy Department’s Energy Information Administration.
  • Front-month natural gas futures settled at $4.07 mmbtu, their highest level in 18 months, amid expectations that elevated demand could wipe out the longstanding glut in natural-gas inventories. The upswing in demand caused by a blast of unseasonably cold weather has led to several weeks of unusually large withdrawals from inventories. That has caused inventory levels, which have been well above normal for more than a year, to approach seasonal norms again.
  • Platinum rallied after Russian Natural Resources Minister Sergey Donskoy raised the possibility of South Africa and Russia acting together in the platinum group metals markets, where they have a combined 80 percent of mine output. Speaking to Bloomberg at the BRICS summit in Durban, he said "our goal is to coordinate our actions accordingly to expand the markets for realization of these metals.” No details were given on how such coordination would work given the importance of private mining companies in PGM production, or the reaction of major consumers.


  • In an analysis report on the iron ore market, the National Development and Reform Commission said a supply glut in the iron ore market has been formed, as demands in China and other economies cannot digest the increasing supply at home and abroad. As China's strong demand for steel begins to ease after the fade-out of the massive stimulus plan during the international financial crisis, combined with slower consumption in developed economies and a limited boost from emerging markets, momentum on the demand side is giving way to supplies. “Given the trend, an oversupply situation is inevitable,” the report said.
  • Copper eased down 1.4 percent this week to close just above $3.40 per pound as warehouse inventories of the metal rise to multi-year highs.


  • According to news on plastemart.com, the U.S. has overtaken the Middle East as the region with the cheapest petrochemicals feedstock, for the first time since the Gulf’s industry was established. The boom in shale gas production has created a wealth of cheap gas feedstock in North America, driving a new generation of petrochemicals expansion in the U.S. “The cash cost per ton of ethylene in the U.S. in Q4-2012 was lower than the cash cost in Saudi Arabia,” said Nexant vice president Graham Hoar, speaking at the MEED Middle East Petrochemicals 2013 conference. “It is a dramatic change in economics in the U.S.”


  • The U.S. Department of Interior is cutting federal mineral payments to 35 states by about $110 million this fiscal year as part of the automatic federal spending cuts that started this month. Wyoming Governor Matt Mead announced this week that his state faces the biggest cut; at least $53 million over the next five months. Wyoming is the nation’s leading coal-producing state and last year received nearly $1 billion in federal mineral payments. Texas is losing only $324,742. The federal government paid a total of $2.1 billion last year to the states, representing their share of revenue from energy and mineral production that occurred on federal land within the states, as well as offshore.
  • WSJ’s “Heard on the Street” column speculates that oil prices could head lower in the medium term as demand trends move lower due to fuel-efficient vehicles and environmental concerns. The article deduces that lower demand will lead to lower prices.
  • Researchers at the University of Oklahoma, Columbia University and the U.S. Geological Survey published a report linking Oklahoma’s largest recorded earthquake to waste water disposal from oil production. Oklahoma’s geological office said this week that the 2011 earthquake was likely, “the result of natural causes.” The waste water blamed for the earthquake was from conventional wells in the Hunton formation.
  • Stockpiles of steel products at large Chinese producers surged to a record, near 15 million tons as of mid-March, according to industry data on Wednesday; reflecting tepid demand that has forced mills to cut output.

Emerging Markets


  • Fitch upgraded the Philippines’ sovereign debt rating from below investment grade BB+ to investment grade BBB- due to a current account balance surplus and a lower debt-to-government-revenue ratio. Moody’s and S&P have yet to follow through with an upgrade.
  • China’s industrial profit growth soared to 17.2 percent in the first two months of the year to 709.2 billion renminbi, suggesting a further recovery of corporate earnings growth year-to-date. Also, based on 84 percent of H-share companies that reported their 2012 earnings, there has been a remarkable sequential improvement in earnings growth to 8.5 percent in the second half from negative growth of 2.8 percent in the first half of 2012. Analysts believe earnings growth recovery will continue in 2013, which should support the market.
  • China will cut retail gasoline prices by 310 yuan per ton and diesel by 300 yuan per ton. It also announced it will adjust prices of oil products every 10 working days from 22 days to better reflect changes in the global oil markets.
  • Chilean companies continue to sell record amounts of corporate debt overseas as yields on existing securities continue to reach record lows. From investment grade to junk-rate, companies of all sizes are lining up to take advantage of the unsatisfied demand for higher yielding offerings in attractive jurisdictions. In the first quarter, Chilean-dollar-denominated offerings reached $3.8 billion, more than double the amount issued in the same period last year.
  • S&P upgraded Turkey’s sovereign rate to BB+, one notch below investment grade, with a stable outlook. S&P has been the most intransigent of the three rating agencies, with Fitch having already given Turkey investment grade. Moody’s is one notch below and is expected to move next.


  • China issued new regulations to limit credit securitization in wealth management products (WMP), capping it at 35 percent of total WMP assets and 4 percent of total bank assets. Bank industry analysts believe the regulations will not have a material impact on the earnings of large banks but may affect smaller banks. The market is concerned that this will in effect tighten liquidity for small business and property developers.
  • Colombia reported official unemployment numbers for February this week. Urban unemployment came in at 12.3 percent, down 0.8 percent and in line with Bloomberg survey expectations. The rate is the largest among major Latin American economies and its inability to remain in the single digits shows signs of structural problems in the Colombian labor market. The Colombian central bank cut benchmark interest rates by 50 basis points last week to address its preoccupation with GDP expanding below potential.


Subdued Chinese Power Utilization Suggests No Imminent Broad-based Policy Tightening

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  • As shown in the graph above, China’s power generators still run much under their capacity. This chart from BCA is based on the historical pattern between the policy interest rate and power generation utilization level, which shows no policy tightening when the sector has been at under-utilization. This technical relationship can be explained by the fact that if power demand is low, the monetary policy should either stay neutral or be easing. Currently, power consumption growth is improving from the 2012 low but still below the historical average.
  • The deadline for Argentina to present its final proposal to estranged creditors led by Paul Singer will be this Friday, March 29. Argentine newspapers are reporting the country is likely to offer par bonds for the notional claim, while offering discount bonds to cover the past interest. Deutsche Bank reports this type of settlement would imply a repetition of the settlement reached in the 2005-2010 restructuring, and consider it possible that the government will present a better proposal. We believe this is a great opportunity for Argentina to finally put to rest the ghosts of the 2002 default, but we are certainly not holding our breath.
  • The benefits of joining the euro outweigh any costs, said finance ministers of the three Baltic countries, rejecting economist Paul Krugman’s view that Europe’s common currency is a “trap.” Austerity plans that Krugman opposed have helped the Baltic nations recover from the debt crisis in 2008 to become the 27-nation bloc’s fastest growing region.
  • While relative underperformance of emerging market equities versus developed markets is likely to continue in 2013, according to Merrill Lynch, any signs of Chinese stability would likely cause a trading bounce in BRIC resource stocks, trading at a ten-year low price-to-book multiple.

BRIC Resource Stocks Cheap Relative to Rest of World

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  • China’s new WMP regulation may curb financing for small- and medium-sized companies. Those are the companies that have benefited from WMP loans. Many banks have started to lend to small businesses since a year ago to look for loan growth, which might offset the WMP tightening impact.
  • Brazilian fiscal spending jumped 13.9 percent in February compared to the prior month, while revenues jumped only 7.4 percent. The gap led the country to post about a $3.2 billion fiscal deficit for the month, reversing some of the January gains. The slower growth in government revenues is accounted for by several tax cuts implemented by the government to spur growth in the slowest-growing BRIC country. The considerable increase in government expenditures may threaten the central bank’s already poor control of the country’s high and unstable inflation.
  • Amid Russian security forces shaking down non-governmental organizations, the Russian navy parading unannounced in Black Sea, and Pravda making a statement about Russian nuclear warheads being installed in Cuba, sentiment toward Russian equities is set to worsen.

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