Capturing the Making of a Bridge

Sunday, July 29th, 2012

July 26, 2012

The bridge at Hoover Dam is a fantastic example of breathtaking infrastructure built in the U.S. Linking Phoenix and Las Vegas, a 2,000 foot long bridge now arches over the Colorado River, shaving as much as two hours off a driver’s commute between the cities.

Nearly halfway completed in this photo, it’s the first concrete-steel composite arch bridge built in the U.S., named after decorated Korean War veteran and governor of Nevada Mike O’Callaghan, and Pat Tillman, who gave up a multi-million dollar football career to enlist in the U.S. Army and fight in Afghanistan where he was killed by friendly fire.

Construction for the $114 million arch began in 2005 as part of the Hoover Dam Bypass Project and was open for traffic on October 19, 2010. The photographer of the image is Jamey Stillings from Santa Fe, who was in between assignments when he took a road trip to capture Lake Mead’s mineral deposits. Heading home, Hoover Dam’s infrastructure caught his eye and compelled him to return to the area by helicopter and car to photograph the infrastructure and surrounding area. The New York Times Magazine featured an incredible slideshow showing the tremendous scale of Stillings’ project.

See the Slideshow.

According to an article in The New York Times about Stillings, his passion was fueled by “the wider historical significance of the construction. The Empire State Building, the Eiffel Tower, the Hoover Dam—the imagery their births created is burned into the collective memory.”

We believe the bridge underscores the ongoing need for natural resources. You’ll find more awe-inspiring stories like this one in the latest Shareholder Report, as we cover what you need, what you want and how much it will cost.

Click on the link below to see the online version now. If you’d like to read it in print, call us at 1-800-873-8637 or email at editor@usfunds.com.

Download the Report

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Tags: Arch Bridge, Collective Memory, Concrete Steel, Eiffel Tower, Empire State Building, Football Career, Governor Of Nevada, Hoover Dam, Hoover Dam Bypass, Hoover Dam Bypass Project, Korean War Veteran, Lake Mead, Long Bridge, Mineral Deposits, New York Times, O Callaghan, Pat Tillman, Shareholder Report, Stillings, U S Army
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Challenging the Paradigms of Investing

Sunday, July 29th, 2012

Challenging the Paradigms of Investing

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

It’s been an exciting and educational time this week. I’ve been in Vancouver at the Agora Financial Investment Symposium speaking to hundreds of investors who are eager to learn how to grow and protect their wealth. This year’s theme, “Innovate or Die,” fit well with my presentation, as the conference challenged attendees to adapt their investment strategies just as empires and enterprises adjust to changing circumstances.

When I wasn’t behind the podium, I was sitting with the audience, soaking up new ideas from speakers, including Gloom Boom & Doom Editor Marc Faber, historian Niall Ferguson and Editor of Outstanding Investments Byron King, who surprised me and challenged my current way of thinking.

Back at the office, our analysts and portfolio managers continue their daily meetings as always to discuss and digest the mountains of research that cross our desks each day. We question what we read, analyze statistics and hypothesize on what we see happening across the global economy. As much as emotions and biases take a role in investing, our goal is to make decisions not based on groupthink that discourages creativity, but founded on a collective wisdom that encourages critical evaluation of the economy and markets.

Global investors constantly need to be watchful of individual biases, impaired thinking and emotional reactions that can have an adverse effect on a portfolio. That’s why we created this weekly Investor Alert which thousands of readers have come to rely on. 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.

My presentation attempted to address a few cognitive dissonances I see in the markets these days and I was pleased to have several attendees approach me afterward, remarking how they thought differently after seeing the slides.

See previous presentations and be surprised.

As much as I’d love to share all of the visuals here, in the interest of space, I selected only a few that I believe challenge the paradigms of investing.

1. For all the hype over recent tech initial public offerings, did you know that investors have lost more money in Groupon and Facebook than the entire assets in all of the gold funds? With the endless coverage leading up to Groupon and Facebook’s IPO, the stocks appeared to be positioned to the public as a mainstream investment. However, I believe people were unaware of the risks involved when they purchased shares.

As you can see below, since its price peak on November 4 through July 26, Groupon has lost $15 billion in market capitalization. Facebook has lost even more in dollar value in a shorter amount of time: From its intraday high on May 18 through July 26, the market cap of the company has dropped $34 billion. These losses pale in comparison to all the money invested in gold funds in the U.S. combined.

2. Did you know that the overall market has historically been more volatile than gold? Take a look at the rolling 1-, 3- and 12-month volatility for the S&P 500 Index, Bank of America stock, gold bullion and gold equities. As with any investment, price action over the short term can rise and fall, but what surprises many investors is that gold has had less rolling volatility than the overall market, gold stocks and a big bank stock like Bank of America (BAC). In fact, looking over the past five years, BAC has seen more volatility than gold, the overall market and gold stocks!

3. While Warren Buffett bashed gold, did you know that Berkshire Hathaway has underperformed the metal over the last 10 years? Gold has been on an incredible bull run over the past decade, and while Berkshire Hathaway kept pace for the first six years, it has struggled to maintain gold’s rise since 2006. In his last shareholder letter, Buffett dismissed gold, comparing the rise of the yellow metal to the tulip mania in the 1600s and claiming that gold only “enjoys maximum popularity at peaks of fear.”

As long as I’ve been in this business, there have been naysayers who question the inclusion of gold in portfolios. However, because the precious metal typically is not highly correlated with other financial assets, holding a small allocation—5 to 10 percent—in a traditional portfolio of stocks and bonds has historically added diversification and reduced volatility.

4. In today’s low yield environment, did you know that inflation causes investors of Treasuries to lose money? Treasuries are seen as a “safe haven” investment, but as of the middle of July, the 10-Year Treasury had fallen to less than 1.5 percent. Yet inflation burns off at a rate of 1.7 percent. This leaves investors with a loss of about 0.2 percent. I believe better opportunities exist.

As I’ve discussed recently, there are plenty of dividend-paying resources stocks with yields much higher than the 10-year Treasury, as well as municipal bond funds that have a higher 30-day SEC yield on a tax-equivalent basis than long-term Treasuries.

Always Be Surprised
Among the millions of people around the world who will watch London’s Olympics, many will stay glued to their flat screens to see firsthand the element of surprise. We want to see the rising star who was considered the underdog, the athlete who takes a record number of gold medals or the team that pulls off an unexpected win. These are memorable moments in the making, like track and field star Jesse Owens, who changed history when he overcame adversity and infuriated the Nazis when he won four gold medals during the 1936 Games. Just like the Olympics, I encourage investors to always stay curious and watchful because you never know where the market’s opportunities will be.

Tags: Adverse Effect, Biases, Chief Investment Officer, Collective Wisdom, Critical Evaluation, Doom Editor, Educational Time, Emotional Reactions, Financial Investment, Frank Holmes, Global Economy, Groupthink, Investment Strategies, Investment Symposium, Investor Alert, Marc Faber, Outstanding Investments, Portfolio Managers, Subtle Nuances, U S Global Investors
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U.S. Equity Market Radar (July 30, 2012)

Sunday, July 29th, 2012

U.S. Equity Market Radar (July 30, 2012)

The S&P 500 Index rose 1.71 percent this week as the equity market shrugged off weak earnings reports and focused on potential monetary policy easing from both the Federal Reserve and European Central Bank (ECB), which could come as early as next week. The telecom services sector led the way, followed by financials and industrials. The materials sector was the only sector in negative territory for the week.

Strengths

• The telecommunication services sector was the best performer this week rising 4 percent, driven by much-better-than-expected earnings reports from MetroPCS Communications and Sprint Nextel. MetroPCS was the best performer in the S&P 500, rising by more than 40 percent.
• The financial sector was predominately led higher by the investment banks and brokerage stocks, which were among the worst performers last week. JPMorgan Chase, Goldman Sachs, Morgan Stanley and Citigroup all rose by more than six percent.
• The industrial sector also performed well as key stocks outperformed, including Caterpillar and General Electric.

Weaknesses

• The materials sector lagged as Dow Chemical disappointed along with Vulcan Materials. Cliffs Natural Resources was the worst performer in the group on continued weak iron ore prices.
• Other areas that were weak included education services, casino and gaming, construction materials, and coal.
• DeVry, the for-profit education company, was the worst performer, falling 29 percent as the company warned of higher costs and declining enrollment.

Opportunity

• The market shifted its focus from earnings to central bank policy late in the week and that should be the focus next week as we could see action from the Fed, the ECB or both.

Threat

• While policy-makers in Europe have made strides to stabilize the situation, many risks remain and the situation remains very fluid.
• China recently cut interest rates for the second time in a month, which likely indicates that conditions on the ground remain challenging.

Tags: Dow Chemical, Earnings Reports, ECB, Education Company, Education Services, Financial Sector, Goldman Sachs, Industrial Sector, Investment Banks, Iron Ore Prices, Market Radar, Materials Sector, Metropcs, Morgan Stanley, Negative Territory, Profit Education, Sprint Nextel, Telecom Services, Telecommunication Services, Vulcan Materials
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The Economy and Bond Market Radar (July 30, 2012)

Sunday, July 29th, 2012

The Economy and Bond Market Radar (July 30, 2012)

After hitting a new low on Tuesday, Treasury yields bounced back sharply on Friday as ECB president Mario Draghi vowed to do whatever it takes to save the euro. This news sparked a “risk on” rally driving risky assets higher and bond prices lower. Yields on Spanish 10-year government bonds reversed course and dropped sharply on the news as it appears the likelihood of a sovereign default has diminished.

Strengths

• In addition to the ECB news discussed above, there was a front page story in the Wall Street Journal earlier this week that was widely believed to be leaked from the Fed to prep the market for potential Fed policy actions as soon as next week. Monetary policy-makers are taking action around the globe.
• Second quarter GDP grew 1.5 percent. While this is a slow level of absolute growth, it modestly beat expectations.
• Several homebuilding companies reported earnings this week which indicated orders in the second quarter were very robust.

Weaknesses

• June durable goods orders ex-transportation fell 1.1 percent, indicating broad-based weakness.
• The U.K. economy contracted by 0.7 percent in the second quarter, while Mexico’s economy shrank by 0.36 percent in May.
• Markit’s July eurozone manufacturing Purchasing Managers Index (PMI) fell to the lowest level since June 2009. The more traditional PMI reports will be released next week, but the indications obviously look weak.

Opportunity

• The Fed and ECB are both talking about additional monetary stimulus. Interest rates are likely to remain very low for the foreseeable future.

Threat

• Europe remains a wildcard with the markets shifting focus on a weekly basis.

Tags: Bond Market, Bond Prices, Durable Goods Orders, Ecb President, Fed Policy, Government Bonds, Homebuilding Companies, Mario Draghi, Market Radar, Markit, Monetary Policy, Pmi, Policy Actions, Purchasing Managers Index, Quarter Gdp, Risky Assets, Shifting Focus, Stimulus, Treasury Yields, Wall Street Journal
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Gold Market Radar (July 30, 2012)

Sunday, July 29th, 2012

Gold Market Radar (July 30, 2012)

For the week, spot gold closed at $1,622.90 up $38.40 per ounce, or 2.42 percent. Gold stocks, as measured by the NYSE Arca Gold Miners Index, rose 3.36 percent. The U.S. Trade-Weighted Dollar Index slumped 1.00 percent for the week.

Strengths

• Agnico-Eagle Mines was one of the few upside surprises this past week, finishing with a price gain of 15.1 percent. The company showed continued strength in its second quarter results and upped 2012 production guidance while its peers did the opposite.
• Randgold Resources reported that initial mining was underway at its massive Kibali gold project in the Democratic Republic of Congo (DRC). The company reported excellent progress and initial pit stripping on one of Africa’s potentially most challenging gold megaprojects at Kibali in the DRC. Randgold, the operator and 45 percent partner in the project with Anglogold Ashanti, envisions the current life of mine plan to average production of approximately 600,000 ounces of gold per year for the first 12 years, with an average grade of 4.1g/t.
• Mineweb reported that Hong Kong’s largest gold storage facility, which can hold about 22 percent of the bullion now in Fort Knox, will open in September to meet rising demand from banks and the wealthy. Hong Kong is emerging as a very important center for gold, especially because it acts as a doorway to China. The current list of hubs include New York, Zurich and London, but there is a growing demand to set up an Asian hub for physical gold storage as wealth departs socialist countries.

Weaknesses

• Australian mineral drilling companies are looking to pack up shop and head to Africa and other regions in response to the collapse in new mining development in Australia. The Gillard government policies have decimated the local mining industry. Earlier in the week, Deloitte Access Economics predicted the mining boom would last only another two years in Australia while the country’s resources minister Martin Ferguson said the era of high commodity prices was already behind us.
• Gold Fields was ordered to shut down its heap leach operations at its Tarkwa gold mine in Ghana due to a directive from the country’s environmental protection agency requiring the miner to stop discharging water from the heap leach section. Tarkwa is a major gold producer for Gold Fields and is a world class gold mine. In 2011 the mine produced 717,000 ounces of gold of which the heap leach section accounted for just under 200,000 ounces. The Ghana EPA directive requires that all water discharges from the heap leach section be run through a water treatment plant to reduce the dissolved salt levels in the effluent which are a non-toxic pollutant.
• NovaGold, a favorite for those who want to own a long-term out-of-the-money call on higher gold prices, fell 29 percent this week as the prospects for future development were shelved.

Opportunities

• UBS Precious Metals Strategist, Dr. Edel Tully, believes the market is ill-prepared in terms of sentiment and positioning to deal with a surge in gold. She notes the COMEX gold net long position has fallen over 50 percent the past year and there is a large disconnect between paper and the physical market.
• The inverse correlation between the dollar and gold appears to have broken down. In the first five-and-a half-months of the year, gold was inversely correlated with the dollar to a certain degree. Since then, this inverse correlation has virtually disappeared, meaning that dollar strength has not depressed the gold price.
• James Rickards, author of The Currency Wars, recently commented that he estimates that mispricing in the LIBOR market by just 10 basis points on an estimated $500 trillion in the swap market over the last five years could lead to an estimated $2.5 trillion in potential damages which lawyers will be eager to pursue. This could become a negative for financials and the economy. Rickards further noted that the next quantitative easing (QE) to be announced will be open-ended, doing whatever it takes to achieve a defined goal. The problem with QE2 was that it was for a defined dollar amount and time period, so the market quickly discounted its effects.

Threats

• Platinum and palladium are seeing some bearish data points with a selection of European car manufacturers reporting declining vehicle sales in Europe of between 14 to 17 percent with expectations sales will fall further. Car sales in North America have generally been strong, but economic growth has stalled. Europe is a key market with respect to the use of platinum in catalytic converters for diesel engines. In addition to car manufacturers scaling back capacity, Volvo, the world’s second-largest truck manufacturer has reported a second quarter decline in new orders of 19 percent year- over-year, including a 43 percent drop in North America. Platinum group metal refiner Johnson Matthey reported this morning that its refining business was down by about 20 percent during the second quarter.
• The price of grain, America’s biggest crop, has surged more than 50 percent since June 15. It is estimated food inflation may rise to 3 to 4 percent in 2013 after the current drought, as the effects of the country’s worst drought since the 1950s work their way onto supermarket shelves.
• With the U.S. being the biggest corn exporter and as a result of ethanol mandates to supplement gasoline demand utilizing perhaps greater than 40 percent of this year’s crop, we could see food prices surge worldwide, possibly discouraging central banks from easing monetary policy. Last year, 42 percent of China’s soybean imports came from the U.S. In 2012, that number has risen to 58 percent year-to-date. One of the catalysts of the Arab Spring was a rise in food prices.

Tags: Access Economics, Asian Hub, Australian Mineral, Congo Drc, Democratic Republic Of Congo, Drilling Companies, Eagle Mines, Gold Market, Gold Miners, Gold Project, gold stocks, Market Radar, Megaprojects, Mineweb, Mining Development, Nyse Arca, Randgold Resources, Republic Of Congo, Spot Gold, Upside Surprises
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Energy and Natural Resources Market Radar (July 30, 2012)

Sunday, July 29th, 2012

Energy and Natural Resources Market Radar (July 30, 2012)

Strengths

• The yield on 10-year Treasury notes closed the week at 1.534 percent, still below the June Consumer Price Index of 1.7 percent. The dividend yield of the stocks in the Global Resources Fund’s portfolio increased from last week to an average of 3.68 percent.
• Eagle Ford oil production more than tripled in May year-over-year, according to the Texas Railroad Commission, and this may be an underestimate. Experts believe that production here in Texas may reach one million barrels a day in the next couple of years.
• Speculation of Europe’s plan to spur economic growth by purchasing government bonds caused oil to increase 2.2 percent this week. Copper also climbed 2.1 percent from Tuesday this week on the New York Mercantile Exchange. Mario Draghi said that the ECB will do whatever it takes to “preserve the euro.”
• Peru’s mining ministry reported that from January to May, production of copper increased 2.5 percent. It was also noted that production in May was up 8.04 percent year-over-year.

Weaknesses

• The same report from the mining ministry of Peru also showed a decline in zinc and iron ore production. Zinc declined about 4.5 percent during the January-to-May time period and iron ore declined further at 16.02 percent.
• The Western Australian Mines Minister has banned coal mining in the Margaret River region based on the “potential ground water impacts.” All applications to mine in this area will be denied and companies have already started to withdraw their requests. Mineral titles already granted, however, will remain intact but any coal mining project proposals will be rejected.

Opportunities

• Tenova Mining and Minerals was awarded a contract to design a copper ore handling and processing system as well as a solvent extraction and electro-winning plant, which could potentially produce 80,000 metric tons per year of copper cathodes. This will support Minera Antucoya’s copper oxide deposit in Chile.
• Aluminum Bahrain BSC (Alba) has hired BNP Paribas to assist the company in a $2.5 billion dollar expansion plan to add 400,000 metric tons of capacity annually (currently 881,000 metric tons) to its operations. According to Reuters, this could be completed by 2015. Alba is currently the fourth largest aluminum smelter.
• In China, the capital of Hunan Province has announced plans of a 195 project undertaking for 2012. It will involve airport, urban transit, and residential infrastructure development.

Threats

• Iron ore prices are now at $116.20 per metric ton, the lowest since December 2009. Small traders in China are now selling their stockpile for a loss, and this would have a very negative impact on the commodity if larger traders were to follow.
• Lakshmi Mittal, CEO of ArcelorMittal, the world’s largest steel and mining company, said that the steel market would remain week going into the second half of the year, especially in Europe. The company lowered expectations of European consumption to between 3 percent and 5 percent for 2012.

Tags: 10 Year Treasury, Coal Mining, Consumer Price Index, Copper Cathodes, Copper Ore, Dividend Yield, Eagle Ford, Government Bonds, Handling And Processing, Margaret River Region, Mario Draghi, Market Radar, Mineral Titles, New York Mercantile Exchange, Ore Production, Project Proposals, Resources Fund, Texas Railroad Commission, York Mercantile Exchange
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Emerging Markets Radar (July 30, 2012)

Sunday, July 29th, 2012

Emerging Markets Radar (July 30, 2012)

Strengths

• The HSBC China July Flash PMI improved to 49.5 versus 48.2 in June, though it is still below 50. The manufacturing sub-index moved above 50, suggesting de-stocking pressure is lessened.
• The Nanjing local government announced supportive measures to provide an easy mortgage facility for first-time home buyers who participate in the city’s Provident Housing Fund. Although the central government has been making stern talks to continue to curb the housing market, its differentiated housing policy will stay and first-time home buyers will be supported by better mortgage rates.
• The Shangsha local government initiated Rmb 829 billion investments in 195 projects. This may show the ability of China to support economic growth. These projects are positive to commodity and machinery producers.
• Singapore industrial production jumped 7.6 percent in June, rising far more than the estimate of 2.8 percent growth. Increased pharmaceutical output countered a decline in electronic shipments.
• The Philippine central bank surprised the market by cutting its interest rate by 25 basis points to a record low 3.75 percent. The Philippines also reported a budget deficit of $278 million in June, mainly to improve the country’s infrastructure.

Weaknesses

• The Bank of Thailand, the central bank, kept its benchmark rate unchanged at 3 percent, but revised GDP growth down from 6 percent to 5.7 percent for 2012 due to collateral impact from external factors. Thailand’s industrial production dropped 9.6 percent, and exports fell 2.5 percent in June.
• Hong Kong June trade growth missed expectations. Exports were down 4 percent year-over-year and imports were down 2.9 percent.
• Korea’s second quarter GDP expanded 2.4 percent, growing at the slowest pace in almost three years, below the median estimate for a 2.5 percent gain.

Opportunities

• Turkey and some other high-yielding emerging market countries (such as Russia) may find themselves the beneficiaries of Japanese investor interest previously directed at Brazil. Barclays estimates that potential portfolio flows to Turkey from Japan could reach $5 to 6 billion per year, or the equivalent of 0.8 percent of GDP.

• Philippine infrastructure investment has become a policy priority. In his “State of the Nation Address,” Philippine President Aquino stated “a large portion of our job generation strategy is building sufficient infrastructures,” focusing on airport, rail, and toll roads that would be built, upgraded and/or privatized. The market expects the policy to benefit companies specializing in construction materials and engineering, public utility, and property developers.

Threats

• China was exporting steel at the highest levels in two years last month. Its shipments abroad rose to 8.7 percent of domestic output, the highest proportion since July 2010, indicating soft domestic demand.
• The “whatever it takes” pledge from ECB president Mario Draghi in reference to saving the euro could come with conditions attached. RGE expects the ECB to restrict any assistance to Spain alone, given that Spain signed a memorandum of understanding.

Tags: Bank Of Thailand, Basis Points, Benchmark Rate, Budget Deficit, Easy Mortgage, Emerging Market Countries, External Factors, First Time Home, First Time Home Buyers, Gain Opportunities, GDP Growth, Housing Fund, Machinery Producers, Median Estimate, Mortgage Rates, Provident, Quarter Gdp, S Industrial, Supportive Measures, Time Home Buyers
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