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How Gold Miners Can Leverage the Price of Gold
Gazing into their crystal balls this week, Wall Street firms interpreted differing futures for gold next year. Morgan Stanley awarded gold the best commodity for 2013 while Goldman Sachs called the end of the metals hot streak. After seeing 11 consecutive years of positive performance from gold, one needs to be wary of research analysts price forecasts, as they have consistently underestimated the shifting dynamics driving the precious metal higher.
The Significant Impact of U.S. Oil Production
The Eagle Ford shale formation lies south of our headquarters in San Antonio, Texas, giving the U.S. Global investment team a firsthand, tacit perspective on the oil and gas industrys growing natural resources phenomenon. Weve witnessed how the oil activity is boosting the local economy with solid-paying jobs, a healthy housing market and strong consumer sentiment, as oil giants such as Schlumberger and Halliburton take a bigger stake in the area.
Small-Caps Pack Big Punch in Emerging Markets
In October, the International Monetary Fund painted a gloomier picture for global investors, as it projected slower growth due to slumping world trade and uncertainty in the West. Despite the forecast, big gains can still be unlocked in the faster-growing emerging markets. We believe the smaller stocks are holding the key.
Five Amazing Global Consumer Trends
Fifth Avenue no longer the worlds most expensive retail location. China set to be the second largest luxury market by 2017. Viva Macau is gaming capital of the world. Inexpensive Indian Aakash 2 could revolutionize tablet industry. Emerging market residents don't need a bank account to pay with their mobile wallet.
The Most Wonderful Time of the Year...for Stocks
November hasn't been living up to its reputation as one of the best months for U.S. stocks. Equity investors have been fed a cornucopia of negative news that has been difficult to digest, including the outcome of the "fiscal cliff," the front page photos of rioting in the eurozone, and the escalation of geopolitical risk in the Middle East.
Three Events That Sum Up the Week
India regained its title as the strongest performing market, overtaking the greater China area, as the country experienced a bounceback in demand due to improved sentiment during the festival season. The Federal Housing Administration reported that it has exhausted its reserves, possibly requiring a bailout from U.S. taxpayers for the first time ever in its nearly 80-year history. The global economic picture came into focus a little more this week with the announcement of Chinas new leadership.
Rediscovering the Golden Beauty of Myanmar
Myanmar has been called "probably the best investment opportunity in the world right now," by legendary international investor Jim Rogers. In an interview with The Myanmar Times, he compared the country formerly known as Burma to China in the 1970s, when it started opening up to the world. "In 1962, Burma was the richest country in Asia. Then they closed and [now] it is the poorest."
A Portrait of Two Presidents
Last Friday, President Obama addressed the two topics that have been on many equity investors' minds since election night: the economy and the dreaded "fiscal cliff." In his speech, he delivered his familiar plan to combine spending cuts with increasing revenue by raising taxes on the wealthiest Americans. That's "how we did it in the 1990s, when Bill Clinton was president," says the president.
Chart of the Week: Gold and an Ever-Growing Balance Sheet
While Americans were still submitting their ballots, gold rallied on the possibility of a President Barack Obama reelection. With presidential results confirmed, it appears that Ben Bernanke's job of hovering over the economy and dropping parachutes of money out of his helicopter is secure. "Gold could not have asked for a better outcome," with a second term for Obama, a Democratic Senate and Republican House, says UBS Investment Research.
A Portrait of Two Presidents
On Friday, President Obama addressed the two topics that have been on many equity investors minds since election night: the economy and the dreaded fiscal cliff. In his speech, he delivered his familiar plan to combine spending cuts with increasing revenue by raising taxes on the wealthiest Americans. Thats how we did it in the 1990s, when Bill Clinton was president, says the president.
A Tipping Point for Gold Companies
Did you know that gold stocks tend to underperform during election years? As shown in the chart below, over the past quarter-century up until the prior election, the performance of the Philadelphia Stock Exchange Gold and Silver Index (XAU) was weak during the year of a presidential election.
Who Will Lead America Over the Next Four Years?
If President Obama is reelected, it could be a negative for certain energy companies involved in natural gas fracking, says International Strategy & Investment (ISI). Conversely, a Governor Mitt Romney win could be significant for energy companies. In its Romney Portfolio ISIs rationale is that Romney and the GOP will try to do more to promote traditional forms of energy, including offshore drilling, approving the Keystone pipeline, and exploiting the nations coal resources.
Don't Fear a Normal Gold Correction
Dont let the short-term correction fool you into selling your gold and gold stocks. The dramatic increase in money suggests that monetary debasement will continue, and in addition to all the above drivers, these are the positive dynamics driving higher prices for gold and gold stocks.
China's Pyramid of Power
China celebrated another achievement last week, as Mo Yan became the first Chinese citizen to win a Nobel Prize for literature. The selection of Mo was praised by a Chinese nationalist tabloid as a sign that mainstream China could "no longer be refused by the West for long."
Chinas Pyramid of Power
We've been able to witness Chinas incredible growth, with GDP averaging 10 percent per year and more than 500 million people moving out of poverty over the past 30 years. Now after three decades of tremendous expansion, this new generation of leaders will have to carefully maneuver the country into the next decade, towing the line between maintaining the stability created during the previous Hu-Wen administration and continuing the political and economic reform necessary to adjust to the countrys slowing growth.
Infectious Ideas for a Connected World
With a greater international exchange of ideas, goods, services, and talent today, our world has never been more wired and connected. Globalization has wholly transformed how people across continents absorb information and interact with each other. I believe it also has subtly changed how we think and act as individuals.
How Helicopter Ben Helps Jobs and, Inadvertently, Gold
The world's central bank leaders continue to spike the monetary punch bowl, with investors imbibing on gold once again. This flurry of gold buying prompts many curious investors and doubting media to ask me two questions: 1) How can demand for gold and gold stocks continue; and 2) How high can the precious metal go? To answer these questions, we need to look at the intentions behind the economic and political decision-making across several developed countries, analyze the causes, the effects, and the possible ramifications.
Is Negativity Contagious?
Negativity persists among investors, as evidenced by the ongoing stream of money leaving equity funds into bond funds. It's challenging to pinpoint the origin of the pessimism because it comes from all over the globe. Daily polls finding Americans at an extreme political division, scenes of anti-austerity riots in Greece and Spain, and the Shanghai Composite Index falling to new lows are only three recent examples.
Gold Stocks or Apple: Which Holds a Place in Your Portfolio?
In a battle between the largest gold exchange traded fund and the biggest tech stock, which investment would get your vote? Would you choose gold because of the macroeconomic factors supporting the rise of the precious metal? Or do you put your money on Apple because of its overwhelming popularity?
The Ramifications of a Robin Hood Tax
Chief Justice John Marshall, in 1819, once described policymakers' great influence, remarking, "The power to tax involves the power to destroy." With rising fiscal deficits and a desperate need to raise revenue, many nations have come up with various tax solutions to raise billions of dollars. One hotly contested idea in the U.S. and Europe lately, and once advocated by John Maynard Keynes during the Great Depression, is a financial transactions tax imposing a cost on buys and sells of stocks or bonds.
The Ramifications of a Robin Hood Tax
Could a transaction tax have unintended consequence for American banks? While the jury is still out on that answer, Hungarys example is a reminder to policymakers to comprehensively consider the rewards of collecting a Robin Hood tax along with the risks. Profits and bank credit growth rates across Hungary plummeted due to the hefty bank levies imposed.
When You Should Stop Buying Gold
Economists and politicians have debated the merits of gold for decades. In the last 10 years, the discussion has been even more hotly contested, as the price of the yellow metal has skyrocketed. Ron Rimbus, CFA, in a blog for the CFA Institute, is the latest person to take on the subject. Rimbus argues that the intrinsic value of gold is intricately linked to whats going on in the financial system, even after the end of the gold standard in 1971.
All Signs Pointing to Gold
So, gold investors, if you havent put in your orders, consider getting them in quickly, because the bulls are buying. Credit Suisse saw 'massive inflows' into gold exchange-traded products in August after experiencing significant outflows compared to crude oil and the broader market in March, April, May and July. August shows a clear preference toward gold.
Chinas Next Act
World markets may not have to wait much longer for Chinese policymakers to act, as the government recently announced new infrastructure projects. According to Bloomberg, China approved 25 new subway construction projects, with related investments estimated to be more than 840 billion yuan. Railway, subway and construction stocks in China increased on the news. China is in much better shape than the rest of the world. A powerful rebalancing strategy offers the structural and cyclical support that will allow it to avoid a hard landing.
Policymakers Report Card on Competitiveness
The U.S. dropped to No. 7 on the World Economic Forums newly released 2012 Global Competitiveness Index report. Switzerland retained its top position as the most competitive nation, followed by Singapore, Finland, Sweden, the Netherlands and Germany. Asian countries continue to be among the most competitiveand many are gaining strength. Among the top 20, five are from Asia.
The Latest ETF Eye-Opener
A few years ago, we discussed the flow of money rushing into ETFs without careful analysis by investors about the unknown risks. Institutional Investor recently highlighted another downside to these investments: ETFs' use of hypothetical, back-tested performance. To attract assets, some index providers have unique indexes based on various performance characteristics, weighting methodologies and valuation metrics.
The Case for Emerging Europe
If history had turned out differently, the USSR wouldve taken home the most Olympic medals this year, as the total awarded to athletes from the area was 163, according to a blog on Foreign Policys website. As we all know, the Wall came down, the Soviet Union collapsed, and now Russia has to be content with its third-place position of 82 medals. Athletes from the United States were awarded the most medals (104), followed by participants from China, who took home 88.
Chart of the Week: Does Adopting Technology Increase a Nations Wealth?
That's the question Harvard Business School's Diego Comin wanted to answer. His research analyzed how quickly 15 different technologies -including steamships, the telegraph, the Internet, MRI scanners, electricity - have been adopted by 166 different countries over the past two centuries to determine if there is a relationship between a country's historical rate of adoption and its per capita income.
Gold: First Mover Advantage
This week, gold bugs were rewarded with the long-awaited positive momentum in the yellow metal, and on Friday, bullion rose to about $1,670. After falling below the 200-day moving average, gold had been stuck in quicksand for several months. With the jumps in the price this week, bullion swiftly rose above this critically important long-term moving average.
Love Trade Cools as Central Banks Gold Demand Heats Up
Although the Love Trade (purchasing gold for coins or jewelry) is on ice for now, a relatively new gold buyer has been warming up to gold. Central bank purchases hit a record high since the official sector became gold buyers three years ago. If this trend continues over the remainder of 2012, central banks will be entering a new territory of gold buying that has not been seen since the early 1960s and since the end of the Bretton Woods System in 1971.
Evaluating the Wisdom of Buying Gold
At the end of January 2008, I posted a discussion about how the book The Wisdom of Crowds by James Surowiecki could explain gold's price climb. The book's premise was basically that "large groups of people are smarter than an elite few."
Even before the height of the global crisis, there was a "wise crowd" of investors who had been buying gold as a safe haven from currency risks and the trillions of dollars invested in derivatives, and as a way to recycle petrodollars.
Which Way Will the Pendulum Swing for Gold?
One of the most fascinating aspects when watching a sporting event like the Olympics is the historical statistics highlighting the tremendous advances in athleticism over the years. In the spirit of the events this summer, BTN Research compared gold's advancement from the beginning of the games in Beijing to the London Olympics.
Where Wealth Thrives and Innovates
A surprising wealth of information about the world's most prosperous people can be discovered in two new reports. The Chinese Millionaire Wealth Report 2012 found that there are now a million millionaires in China. On average, a Chinese millionaire is 39 years old, has an average of four luxury watches, vacations in France, and owns a business. KPMG;s The Wealth Report 2012 found that there are 18,000 centa-millionaires in Southeast Asia, China and Japan.
The Race for Resources
The world watched in awe as American swimmer Michael Phelps became the most decorated Olympian of all time. It's inspiring to see the incredible results of his tremendous sacrifice and commitment. Investing in global markets requires the same sort of stamina, especially at times like this week, when the month's reading on the manufacturing industry was not encouraging. The J.P. Morgan Global Manufacturing PMI of 48.4 for July was the lowest since June 2009.
Will the Markets Direction Determine the Presidency?
After the first few months of President Barack Obama's term in office, I wrote about the carnival rollercoaster the market was riding. Looking at the blue line below, that post may have foreshadowed his tenure! The average of four-year presidential cycles from 1953 through 2008 shows that the S&P 500 Index generally remains flat for almost the first two years, before heading higher in the second half.
Challenging the Paradigms of Investing
Global investors constantly need to be watchful of individual biases, impaired thinking and emotional reactions that can have an adverse effect on a portfolio. One of our values at U.S. Global Investors is to always be curious to learn and improve, and the Investor Alert was borne from a belief that shareholders want to understand the very subtle nuances of biases and misconceptions. I have selected a few that I believe challenge the paradigms of investing.
America's Competitive Spirit
We believe there are many great American companies to invest in. We like those that are growing their top line revenues and paying robust dividends. Currently 47 percent of the S&P 500 stocks pay a dividend yielding more than a 10-year Treasury, demonstrating the resiliency and strength of American enterprises.
How to Look Past Negativity to See Opportunity
Among investors these days, a fellow commodity bull is about as rare as finding a positive story in the media, especially when you look at the results of metals and natural resources during the first half of 2012. Only four commodities on our periodic table pulled off a positive return. Wheat grew the most, rising 13 percent, followed by single-digit rises from corn, gold and copper.
Worried about Higher Taxes? Take Action
About 1.25 million Americans would pay more in taxes next year if President Barack Obamas latest plan is approved. The White House wants to allow taxes to rise for households making more than $250,000 by boosting the top marginal tax rates to 36 and 39.6 percent (currently, its 33 and 35 percent). In an environment where government policy favors higher taxes, investments that lower a tax bill can look attractive.
Looking Past Negativity to See Opportunity
Tremendous population growth, changes in government policies, development of new technologies, urbanization trends work the same way. Its what Jeremy Grantham called the great paradigm shift and they have equally dramatic effects on how we invest in commodities, change opportunities and adjust for risk. Smart investors look past the rampant negativity in the media to see these patterns and anomalies to determine where the opportunities and threats lie.
Pocket of Strength: Employment in the Mining Industry
Did you know that one of the industries that has seen the best job growth in the U.S. is mining? As you can see below, from the end of December 2007 through May 2012, U.S. employment in the mining sector has increased 16 percent. This percentage change is far better than any other sector, according to data from the Bureau of Labor Statistics.
Are You Limited by Linear Thinking?
Dont be limited by linear thinking in your portfolio. As an alternative to low yielding Treasury bonds, consider resources stocks that pay dividends. Weve found that most materials, utilities and energy stocks in the S&P 500 Index pay a dividend higher than the 10-year Treasury: Materials and utilities companies yield an average of 2.3 percent and 4.1 percent, respectively, while energy stocks pay an average yield of 2.2 percent. Nonlinear thinkers have historically benefited from the inclusion of natural resources as part of a balanced portfolio.
Global PMI: The Trend is Your Friend
Manufacturing around the world weakened in June, according to the JP Morgan Global Manufacturing Purchasing Managers Index (PMI). Its reading of 48.9 was the lowest in three years and the first dip below 50 since September 2011. The current reading is also below the three-month moving average for the second month in a row. As you can see on the chart, PMI crossed below the three-month in May.
Unmasking the Asian Giant
China is far from perfect: While actors can perfect their lines and use masks to captivate an audience, smart investors know better to use a wealth of information across numerous sources to guide investment decisions. Weigh the evidence and judge for yourself. As my friend, Investment Strategist Keith Fitz-Gerald recently said in an interview, A powerful China is coming, and we have two choices. Either we're at the table, or we're on the menu. To him this means, Good news from China is good news for the U.S.; bad news from the Chinese economy is bad news here.
What the Price of Gas Tells Us
A few months ago, we created two visuals we felt captured the emotions of how people respond to gasoline prices around the U.S. With an increased dependency on our cars these days to get to work, school and grocery stores, the price of gas is a constant reminder of how rich we feel. When it seems as if filling the SUV costs an arm and a leg, we shift patterns by carpooling, forgoing the trip to the beach or decreasing spending elsewhere.
An Ending Made For Gold
Over the past several months, the markets have tested investors conviction to gold. Since February, the price of the yellow metal has steadily stepped lower, rallying somewhat in May before falling again when Ben Bernanke disappointed by not providing the U.S. with more stimulus. Meanwhile, the dollar gained ground as global investors fled the euro.
An Ending Made For Gold
Hold tight to your convictions, gold investors. Review your allocation to gold and gold stocks to make sure it remains around 5 to 10 percent of your portfolio. That way the precious metal can act as a shock absorber to help protect from any unexpected bumps in the financial system.
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