U.S. Global Investors...EM = Emerging Markets. November 2009 09-673 7. Macro Theme-Tailwind for...
Transcript of U.S. Global Investors...EM = Emerging Markets. November 2009 09-673 7. Macro Theme-Tailwind for...
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www.usfunds.com1.800.US.FUNDS
U.S. Global InvestorsSearching for Opportunities, Managing Risk
November 200909-673
What’s Driving Energy?
Frank Holmes,CEO and Chief Investment Officer
Brian Hicks, CFAPortfolio Manager
Evan Smith, CFAPortfolio Manager
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Fund Recognition
Winner of 26 Lipper Fund Awards and certificates since 2000
Investment leadership results
in performance
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6 Billion People-Tipping Point
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Delayed Not Derailed Secular Bull Market in CommoditiesSignificant events for S&P Financials and the VIX
Natural Resources Outlook Webcast
January 2009
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Demographics is the Key
Half of the global population (>3 billion) is estimated to live in urban areasProjected urban population is larger than the entire world population in 1965Deng Xiaoping
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Demographics is the Key
EM = Emerging Markets
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Macro Theme-Tailwind for Infrastructure Spending
Source: PIRA
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Macro Trend Tailwind for Investing in Emerging Economies
Source: PIRA
Population
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Chindia — Rising Middle Class
Source: PIRA
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Infrastructure Spending and Oil Demand March TogetherBarrels of Oil per Day/1000
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Developing Nations’ Per Capita Income is at a Level Where Oil Demand Begins to Grow Rapidly
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OECD and EM/FSU Oil Demand Growth
OECD= Organization for Economic Co-Operation and Development
EM= Emerging Markets
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Oil Consumption per capita:
1 to 25
1 to 16
1 to 15
1 to 2
0.9
U.S.
S. KoreaJapan
Oil Consumption and Industrialization, 1900 to present
Lower U.S. labor costs versus Europe and the U.K. drive American industrialization, enrichment and energy consumption
Lower Japanese labor costs do the same to the U.S.
Lower Korean labor costs do the same to Japan
Oil per capita rises rapidly during early industrialization, then levels to rapid real income growth. Rising world trade actually stimulates the industrialization phase.
China & India
Super Shift – Energy
Source: Dr. Marc Faber
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Power consumption has been growing faster than the rate of GDP growth.Source: BHPB
Intensity of electricity consumption
Super Shift – Electricity
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Long-Term Power Demand Likely to Grow
China’s per capita power consumption is only 16% that of the U.S.
India’s is only 4% of per capita U.S. consumption
As per capita income rises, power consumption likely to grow
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Proposed Ultra Mega Power Projects
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Government Policy Model —Precursor for Change
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E7 and G7 Population vs GDP — Inverse Relationship
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Monetary Policy
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Monetary Policy
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Before the Crisis Money Supply and GDP Expanded Fast Against Limited Oil Supplies
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High Correlation of Oil and Money Supply
Government will likely continue to print money, like the bailout of Fannie Mae and Freddie Mac, to support the economy
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Increases in Money Supply Translate Into Higher Commodity Prices in the Long-Run
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Commodities Respond First to Monetary Policy While Retail Prices are More Sticky
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Kuznets Cycle – 20-year Emerging Market Cycle That Drives Commodity Demand
Presidential Election Cycle – 4-Year Cycle
Seasonal Cycle – Commodity and Stock Market Patterns
Cycles – Where Are We on the…
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Annual Cyclical Pattern — Oil
Source: U.S. Global Research
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Source: U.S. Global Research
Annual Cyclical Pattern – Natural Gas
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Oil vs. Dollar
60-day Std Dev Number of Times Up 2 Std Dev Number of Times Down 2 Std Dev Current Move in Std Dev
Oil 18.78% 9 or 1.7% of time 19 or 3.6% of time 0.3
U.S. Dollar 4.51% 13 or 2.5% of time 5 or 1% of time (0.5)
Correlation over 10 years: -80%
Source: Bloomberg, U.S. Global Investors
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Household Consumption Contribution to Nominal USD Global GDP Growth: BRIC vs U.S.
BRIC = Brazil, Russia, India and China
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Catch-Up Potential — Big Macro Trend
• Poor countries grow faster than rich ones• EM GDP per capita is US$5,000 vs. $40,000 in developed markets
As of Sep 2006. Source: IMF, Merrill Lynch
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Oil Consumption Per Day Per Person Vis-à-Vis Per Capita Income
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Oil Consumption Per Day Per Person Vis-à-Vis Per Capita Income
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Auto Sales, BRIC vs U.S.
BRIC = Brazil, Russia, India and China
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Car Ownership Rising in Asia . . .
Less than 5% of the population has a car in China versus a 74% penetration in the U.S.
Much lower penetration in India with lower per capita income
Car penetration shoots up as per capita income crosses US$3,000
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Huge Pent-Up Demand for Automotive Transportation in the Developing World
BYD (Build Your Dreams) president Wang Chuanfu sits inside the BYD E6 Electric Car during the North American International Auto Show in Detroit, Michigan January 12, 2009. Source: REUTERS/Mark Blinch
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China Passenger Car Sales Year-over-Year Growth Sharp Rebound YTD
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$800 Billion in Asia’s Regional Stimulus
In the next five years, we expect $2.5 trillion infrastructure spending for Asia ex-Japan (a 15% CAGR)The global downturn impacts current infrastructure needs, e.g., power generation and portsLonger-term needs remain, e.g., road, rail, green energy
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China: New Renminbi Bank Lending
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Uneven Growth in Infrastructure Spending
China projected for 36.5% Year-over-Year growth in infrastructure spending in 2009, but is moderating into 2010
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China Crude Oil Net Imports
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Chinese Oil Demand Growth Offsets U.S. Demand Destruction
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China + U.S. Oil Demand Back to July 2008 Levels — Chimerica
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China Asphalt Apparent Demand
Zhanxi bridge highway, Beijing China
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China’s Overseas Oil and Gas Activity Rebounds
Source: PIRA
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Historical ‘Macro Trend’ Since 1935
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Massive Bifurcation in Market Started Oct ‘07
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Emerging Markets are Driving Oil Demand
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Geopolitical Threats to Oil Supply
Mahmoud Ahmadinejad, President of Iran
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Longer-Term, Rising F&D Costs Render Higher Prices
F+D= Findings + Development
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Long-Term Oil Prices Aligned with Fundamentals
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U.S. Consumer Spending on Gasoline
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WTI Oil Rising by More than 100% Year-over-Year is a Reliable Indicator of the Onset of U.S. Recession
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High Unemployment and Spare Capacity Suggest Core Inflation will Remain Muted
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EM-Led Recovery will Bring Higher Oil Prices, Suggesting Rising Headline Inflation
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Is The Distillate Inventory Cycle About to Turn?
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Improving Refining Business Prospects Should Boost Integrated Energy Stocks
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Seasonal Patterns: Returns Strongest in December through May in 16 of 19 Years
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Seasonal Cycle: Unusually Predictable
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Become a Fan of U.S. Global
Check Out the U.S. Global Fan Page on Facebook @ www.facebook.com/usfunds
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Follow U.S. Global on Twitter
Real-Time Updates on Market Events @ twitter.com/usfunds
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Frank Holmes’ CEO Blog “Frank Talk”
Frank Talk offers insight into market events and discusses global investing topics like gold,
commodities, infrastructure and emerging markets. Read what’s on Frank’s mind @
www.usfunds.com/investor-resources/frank-talk/
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Sign Up to Receive the Weekly Investor Alert
Each week our investment team analyzes key events in global markets. U.S. Global’s Weekly Investor Alert is delivered to your
inbox each Friday evening. Subscribe to this free market newsletter @ www.usfunds.com/investor-resources/investor-alert/
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Check Out the New usfunds.com
We’ve recently redesigned our Web site and added some new features. Visit
www.usfunds.com to see the new look!
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Disclosures
Please consider carefully the fund’s investment objectives, risks, charges and expenses. For this and other important information, obtain a fund prospectus by visiting www.usfunds.com or by calling 1-800-US-FUNDS (1-800-873-8637). Read it carefully before investing. Distributed by U.S. Global Brokerage, Inc.
All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor.Foreign and emerging market investing involves special risks such as currency fluctuation and less public disclosure, as well as economic and political risk. Because the Global Resources Fund concentrates its investments in a specific industry, the fund may be subject to greater risks and fluctuations than a portfolio representing a broader range of industries. 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 Volatility Index (VIX) shows the market's 30-day volatility, and is a widely used measure of market risk. The S&P GSCI Spot index tracks the price of the nearby futures contracts for a basket of commodities. 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. Standard deviation is a measure of the dispersion of a set of data from its mean. The more spread apart the data, the higher the deviation. Standard deviation is also known as historical volatility. The S&P 500 Stock Index is a widely recognized capitalization-weighted index of 500 common stock prices in U.S. companies. The Reuters/Jefferies CRB Index is an unweighted geometric average of commodity price levels relative to the base year average price. Beta is a measure of the volatility, or systematic risk, of a security or a portfolio in comparison to the market as a whole. S&P Oil & Gas Refining and Marketing Index tracks the market performance of downstream oil and gas companies. Holdings in the Global Resources Fund as a percentage of net assets as of 9/30/09: Exxon Mobile 0.00%, Burlington Northern 0.00%, Pacific Rubiales 3.51%, Chevron 3.67%, Kinross 0.00%, Petrobras 0.00%. Alpha is a measure of performance on a risk-adjusted basis. Alpha takes the volatility (price risk) of a mutual fund and compares its risk-adjusted performance to a benchmark index. The excess return of the fund relative to the return of the benchmark index is a fund's alpha. Although Lipper makes reasonable efforts to ensure the accuracy and reliability of the data contained herein, the accuracy is not guaranteed by Lipper. Users acknowledge that they have not relied upon any warranty, condition, guarantee, or representation made by Lipper. Any use of the data for analyzing, managing, or trading financial instruments is at the user's own risk. This is not an offer to buy or sell securities.