American Exceptionalism Is Real

S&P 500 notches its best quarterly performance since 1998
click to enlarge

America Drives Global Innovation

There’s another reason why I opened with Carrier. Like many other essentials and creature comforts people all over the world enjoy on a regular basis, the air conditioner—named the

Nearly 120 years ago, an American engineer named Willis Carrier invented the very first electrical air conditioner. The device was such a hit that he founded the Carrier Corporation in 1915 to meet demand, making it the world’s first HVAC (heating, ventilating and air conditioning) company.

Fast forward to today, and Carrier Global, as it’s now called, is one of the largest HVAC manufacturers in the world. Last year it did some $18.6 billion in sales, close to half of it overseas. The Florida-based company employs approximately 53,000 people across six continents.

The reason I bring up Carrier now—besides the fact that, this being July, most of you reading this likely have your air conditioners running full blast—is because the company was the best performing S&P 500 stock for the first six months of 2020, up 67.9 percent.

Carrier’s stellar price action should come as no surprise. With millions of people around the globe following stay-at-home orders, HVAC services have become a top priority. There are few things worse than being cooped up in a building with a busted air conditioner.

What’s more, the company offers a number of air filtration solutions for hospitals, malls and other indoor areas. Its OptiClean air scrubber features high-efficiency particulate air (HEPA) filters that pull the air in, remove contaminants and discharge the air back into the room cleaner than it was before.

“Coronavirus Stocks” Were Winners in H1 2020

The stay-at-home line of thinking doesn’t end at air conditioning, of course. In your head, list some other things you probably couldn’t have done without during lockdown.

Whatever product or service you name, there’s a fair chance that shares of the company or companies behind it also performed well in the first half of 2020. That includes disinfectant products (Clorox, up 45.3 percent in the six months ended June 30), home entertainment (Netflix and Activision Blizzard, up 42.1 percent and 29.7 percent), online retail (Amazon and eBay, up 49.4 percent and 47.7 percent) and—because restaurants were shut down—groceries (Kroger, up 17.7 percent).

These names are what some analysts have been referring to as “coronavirus stocks,” and they helped the market notch its best quarter in more than 20 years. The S&P 500 ended the June quarter up nearly 20 percent, the most since 1998.

click to enlarge

America Drives Global Innovation

There’s another reason why I opened with Carrier. Like many other essentials and creature comforts people all over the world enjoy on a regular basis, the air conditioner—named the 10th greatest engineering achievement of the 20th century by the National Academy of Sciences (NAS)—is an American invention.

American ingenuity is something I hope you took pride in this past Fourth of July weekend.

Until recently, the U.S. held the largest number of international patents. China became the biggest source of applications in 2019 for the first time since the global system was set up more than 40 years ago. But as Bloomberg reported in 2018, most of the country’s patents are …read more

3 Charts on the State of the U.S. Airline, Restaurant and Hotel Industries

People are steadily returning to the skies
click to enlarge

Many Americans are understandably leery about flying at this time, but

As you may have already heard, the European Union (EU) just released its list of 15 countries that are permitted to visit the 27-country bloc starting today, and the U.S. was not among them. With the rate of new coronavirus cases spiking in a number of states including Texas, Florida and Arizona, EU officials have determined that the risk is too great to welcome Americans at this time.

Although disappointing, the decision is but a temporary setback. The EU plans to revisit the list of approved countries once every couple of weeks or so, meaning American travelers could be given the green light as soon as mid-July—provided the rate of infection starts going in the opposite direction.

It’s not all bad news for the U.S. travel industry, though. Within the U.S., the number of people boarding commercial flights continues to rise at a healthy pace. On Sunday, June 28, close to 634,000 passengers were screened by the Transportation Security Administration (TSA). Not only is that a post-pandemic high, but it’s also up more than seven times from the low of 87,500 passengers on April 14.

click to enlarge

Many Americans are understandably leery about flying at this time, but carriers have taken drastic measures to ensure that passengers are safe and comfortable during flights. That includes everything from requiring mask-wearing at all times to conducting a deep cleaning before every flight to, in some cases, blocking off the middle seats.

American Airlines officials are so confident in the carrier’s ability to keep their planes disinfected that, beginning today, flights will be booked to capacity, up from 85 percent capacity. Meanwhile, United Airlines will be adding 25,000 flights to its schedule in August, to reach 48 percent of its total capacity from the same time a year earlier.

Restaurants Reverse Course, Texas Bars Close

Whereas airlines are cautiously increasing capacity, many restaurants in the U.S. appear to have opened faster than advised. As a result, some state and local officials are instructing bars and restaurants to limit capacity to prevent further spread of the coronavirus.

The chart below uses data provided by the restaurant reservation service OpenTable. It shows you the percent change in reservations from a year earlier.

Out of curiosity, I compared reservations in the U.S., Texas and our hometown of San Antonio. Perhaps not surprisingly, bookings in Texas raced up dramatically, far faster than the national average, as Governor Greg Abbott reopened the Lone Star State’s economy. However, as cases and hospitalizations in Texas began to spike—on Tuesday, Texas was one of eight states that reported a new single-day high in new infections—Abbott ordered that dine-in restaurant service be reduced to 50 percent capacity and that bars be closed altogether.

click to enlarge

As you may imagine, Texas bar owners were none too pleased with Abbott’s mandate, and today several of them filed a $10 million federal lawsuit against the governor for …read more

This Could Be the "Perfect Storm" that Pushes Gold to a New Record High

gold price returns to multiyear high as US dollar declines june 2020
click to enlarge

LLooking more long term, gold continues to find support from negative yields, both real and nominal. The amount of negative-yielding government bonds around the world rose back above $13 trillion last week for the first time since March. The high of $18 trillion was set in August of last year.

The real 10-year Treasury yield traded as low as negative 0.66 percent last Tuesday, a level we haven’t seen since May 2013. As I’ve shown a number of times before, gold trades inversely to bond yields, and when they turn negative, it’s like

A “perfect storm” of surging government debt levels, plunging real bond yields, rising coronavirus cases and deteriorating economic forecasts pushed the price of gold to an eight-year high last week, and some analysts now project the metal to top its all-time high within the next 12 months.

Gold touched $1,778 an ounce last Wednesday, its highest level since February 2012 and coming within striking distance of the psychologically important $1,800 resistance level.

What drove the yellow metal’s price action was not just an alarming rise in confirmed virus infections—U.S. cases hit a new single-day record of more than 42,255 on Friday—but also a weakening U.S. dollar. The greenback declined the most in three weeks as the yen and euro strengthened amid gains in global shares.

click to enlarge

LLooking more long term, gold continues to find support from negative yields, both real and nominal. The amount of negative-yielding government bonds around the world rose back above $13 trillion last week for the first time since March. The high of $18 trillion was set in August of last year.

The real 10-year Treasury yield traded as low as negative 0.66 percent last Tuesday, a level we haven’t seen since May 2013. As I’ve shown a number of times before, gold trades inversely to bond yields, and when they turn negative, it’s like rocket fuel for the yellow metal.

click to enlarge

IMF Lowers Its 2020 Economic Growth Forecast. More Money-Printing Ahead?

Meanwhile, the International Monetary Fund (IMF) lowered its economic growth forecast for 2020. The world economy is now projected to plunge nearly 5 percent this year, a downward adjustment of 1.9 percentage points from the IMF’s April forecast.

“The COVID-19 pandemic has had a more negative impact on activity in the first half of 2020 than anticipated, and the recovery is projected to be more gradual than previously forecast,” IMF economists wrote in the June 24 report.

This could spur even more monetary and fiscal stimulus from world central banks and governments, which is already unprecedented. The Bank of England (BoE) recently added to its bond-buying program, and the Federal Reserve has signaled that it will be keeping rates near zero.

Get this: As of right now, the Fed’s balance sheet stands at $7 trillion, or 33 percent of U.S. GDP. And earlier this month, the Treasury’s public debt soared past $26 trillion, an incredible 120 percent of the entire U.S. economy.

This isn’t sustainable, obviously, and some analysts now see dollar-denominated gold hitting a new all-time high in the next 12 months, even in a risk-on environment. Both Morgan Stanley and Citigroup maintain their call for $2,000 gold by mid-2021.

London-based research firm Edison goes even further. In a note dated June 23, analysts there commented that gold should be near $1,900, “with the potential for this to rise to in excess of $3,000.”

Gold’s Best Year Ever (So Far) in Dollar Terms

So far in 2020, physical gold is …read more

What Is a Luxury Good?

Luxury sales have grown faster than disposable income and basic goods sales
click to enlarge

The more disposable incomes rise, the more households may be willing to splurge on luxury items such as designer clothes, makeup, accessories, fine wine and liquor, automobiles and more. Like Mad Men‘s Rachel Menken, many consumers understand that one of the biggest appeals of luxury items is that they’re expensive and out-of-reach for a lot of people. Because not everyone can afford them, they’re universally seen as status symbols. Being spotted driving your high-performance sports car while wearing a designer jacket and carrying a genuine leather handbag is perhaps the most emphatic way to tell others that you’ve “made it.”

Rise of the Global Middle Class

Right now, incomes are rising all over the globe, particularly in emerging economies such as China and India. At the end of 2019, nearly half of the world’s population was part of the middle class. Not only is this a remarkable achievement for humanity, but it’s supportive of future luxury sales.

According to CaxiaBank Research, 3.6 billion people, or 47 percent of the global population, belonged to the middle class last year, up from 1.8 billion people only 10 years earlier. The research firm estimates that by 2030, that figure could swell to 5.2 billion people, or 61 percent of the world’s population. It’s possible that the recent economic downturn caused by coronavirus-related lockdown measures may negatively impact CaxiaBank’s projection, but we’re still bullish on the trend.

Size of global middle classs projected to continue climbing
click to enlarge

China accounted for more than half of the global growth in luxury spending between 2012 and 2018, according to McKinsey. We believe the country, and its neighbor India, will continue to be responsible for a significant share of global demand growth, especially once the region’s economy begins to recover.

Wealth generation on the higher end has also been on the rise. In 2019, the number of new millionaires around the world grew by 1.1 million, bringing the total to 46.8 million, according to Credit Suisse. The same year, the number of ultra-high-net-worth individuals (UHNWI)—those with a net worth of at least $30 million—increased by 6.4 percent. Thirty-one thousand new people joined this highly exclusive club, which numbered 513,200 members, according to Knight Frank’s 2020 Wealth Report.

USLUX: A New Way for Investors to Participate

For investors who are interested in the opportunity to invest in the luxury market, we’re pleased to introduce a new way to participate.

Effective July 1, the Holmes Macro Trends Fund (MEGAX) will change its name and investment strategy to become the Global Luxury Goods Fund, ticker symbol USLUX. We believe that, going forward, equity in companies involved in the design, manufacture and sale of luxury products and services is the best way to play the upward trend in global wealth and disposable income.

USLUX provides investors access to some of the world’s best-known luxury brands. Its benchmark is the S&P 500 Global Luxury Goods Index.

Among the universe of investable companies are fashion houses, automobile manufacturers, hotel operators, “athleisure” brands, home goods companies and more.

We hope you’re just as excited as we are! Keep your eyes peeled for upcoming news and announcements about USLUX. The easiest way to do that is to make sure you’re subscribed to the Investors Alert (click here) and my CEO blog, Frank Talk (click here).

Click

In the very first episode of Mad Men, the critically acclaimed AMC series about the advertising business in 1960s New York, ad man Don Draper is approached by Rachel Menken, the head of a fictional high-end department store called Menken’s. She wants Don’s help in raising her store’s profile.

After some brainstorming, Don has an idea: coupons. “Ms. Mencken,” he tells Rachel, “coupons work.”

But Rachel isn’t convinced. People don’t visit her store because they think the merchandise is affordable. Instead, she says, they go there precisely because it’s expensive.

This attitude may seem counterintuitive to some, but it has a lot of merit. By positioning her store as out-of-reach for most consumers, Rachel teaches Don a valuable lesson about the economics of luxury goods.

But first, what is a luxury good?

Everyone has their own ideas of what defines “luxury.” For some, it’s high quality and price. For others, it’s rarity and exclusivity. These are the qualities Rachel seems to have in mind.

We like to go a bit further with our definition and add that luxury goods are those for which demand has tended to grow faster than potential buyers’ disposable incomes. This contrasts with “necessities,” for which demand growth has been more in line with income growth over time.

Take a look at the chart below. It shows the year-over-year percent change in luxury good sales, consumer staple sales and disposable income. With one (very big) exception in 2015, luxury sales grew faster on an annual basis than both people’s after-tax income and sales of essential household products. Often the difference was substantial.

click to enlarge

The more disposable incomes rise, the more households may be willing to splurge on luxury items such as designer clothes, makeup, accessories, fine wine and liquor, automobiles and more. Like Mad Men’s Rachel Menken, many consumers understand that one of the biggest appeals of luxury items is that they’re expensive and out-of-reach for a lot of people. Because not everyone can afford them, they’re universally seen as status symbols. Being spotted driving your high-performance sports car while wearing a designer jacket and carrying a genuine leather handbag is perhaps the most emphatic way to tell others that you’ve “made it.”

Rise of the Global Middle Class

Right now, incomes are rising all over the globe, particularly in emerging economies such as China and India. At the end of 2019, nearly half of the world’s population was part of the middle class. Not only is this a remarkable achievement for humanity, but it’s supportive of future luxury sales.

According to CaxiaBank Research, 3.6 billion people, or 47 percent of the global population, belonged to the middle class last year, up from 1.8 billion people only 10 years earlier. The research firm estimates that by 2030, that figure could swell to 5.2 billion people, or 61 percent of the world’s population. It’s possible that the recent economic downturn caused by coronavirus-related lockdown measures may negatively impact CaxiaBank’s projection, but we’re still bullish on the trend. …read more

Are We Heading for a Second Wave of Lockdowns?

Coronavirus cases beginning to rise again in the U.S.
click to enlarge

California, which now requires mask-wearing outside of the home, had its biggest one-day jump in infections. Arizona, Florida and Texas are also turning into new hotspots.

The threat is such that some companies are closing stores again after reopening. Apple announced it would be closing 11 locations in Florida, North Carolina, South Carolina and Arizona.

Our hometown of San Antonio recently had its largest one-day caseload, and hospitalizations are on the rise, particularly among veterans. On Friday, the Audie L. Murphy Memorial Veterans Hospital, not a 10-minute car ride from our office, reported its

“I cannot emphasize how important this could be.”

That’s Dr. Sam Parnia, a doctor and professor at the Grossman School of Medicine at New York University. What he was reacting to is news that a cheap drug, dexamethasone, has reportedly been shown to reduce deaths among COVID-19 patients on ventilators by as much as one-third.

“It’s a huge breakthrough, a major breakthrough,” Dr. Parnia said of the study conducted by scientists at the University of Oxford.

The 60-year-old anti-inflation medicine is manufactured by a number of companies, including Mylan and Merck, and is widely available in pharmacies and hospitals around the world.

The discovery—if it’s everything the researchers say it is—comes just as new coronavirus cases and hospitalizations are spiking again in several countries, including the U.S.

click to enlarge

California, which now requires mask-wearing outside of the home, had its biggest one-day jump in infections. Arizona, Florida and Texas are also turning into new hotspots.

The threat is such that some companies are closing stores again after reopening. Apple announced it would be closing 11 locations in Florida, North Carolina, South Carolina and Arizona.

Our hometown of San Antonio recently had its largest one-day caseload, and hospitalizations are on the rise, particularly among veterans. On Friday, the Audie L. Murphy Memorial Veterans Hospital, not a 10-minute car ride from our office, reported its highest number of coronavirus inpatients since the crisis began.

Fear and Loathing in the Age of COVID-19

The data is scary and can be paralyzing—if you let it. As I’ve said a number of times, it’s important to keep things in perspective while also being smart and cautious. The average age of death in confirmed COVID-19 cases is 82, according to figures from Massachusetts, and San Antonio’s data appears to bear that out as well.

Below are COVID-19 cases and deaths in San Antonio by age. As you can see, people under the age of 49 make up a vast majority of total infections in the city, and yet they represent a very small fraction of deaths due to coronavirus-related complications. Meanwhile, the group with the most deaths are those aged 80 to 89, even though they have 13.5 times fewer cases than the 20-to-29 bunch.

click to enlarge

But even if an older person contracts the virus, it’s not automatically a death sentence. Of the 103 San Antonians aged 80 to 89 who tested positive, only 22 died as a result, or a little more than one in five.
I understand this is an uncomfortable subject, and I don’t mean to minimize the risk. My intent is simply to share the facts so we can better manage our expectations.

We fear what we don’t understand, and fear often triggers us to make decisions we later regret. Nearly one-third of investors at Fidelity who were over the age of 65 sold all of their stocks between February and May. Tragically, many got out right at the …read more

Record Spending and Money-Printing Puts Markets in Uncharted Waters

fed blance sheet now at a third of U.S. GDP
click to enlarge

Combined with near-zero interest rates, these actions have prompted a tidal wave of corporate borrowing. In the first five months of 2020, U.S. firms have issued over $1.12 trillion in investment-grade debt. That’s more the total borrowing amount for all of 2019. And remember, this is only investment-grade. If we included lower-rated bonds, the figures would be even higher.

U.S. corporations have already issued over $1trillion in investment-grade debt in 2020
click to enlarge

As a result, we may see an increase in the share of “zombie” firms, or those whose “debt servicing costs are higher than their profits but are kept alive by relentless borrowing,” according to a report by

Back in March, I predicted that the total U.S. economic response to the COVID-19 crisis would be at least $10 trillion.

Between the relief packages passed by Congress and monetary stimulus enacted by the Federal Reserve, we’ve already reached that enormous sum. And yet it still won’t be enough to prevent further economic erosion, according to some economists.

In a letter to Congress signed by more than 100 ppeople, including former Fed chairs Ben Bernanke and Janet Yellen, the authors warn lawmakers that even though “unprecedented levels of economic support” have been set aside for families and businesses affected by the lockdown, “more needs to be done.”

Congress must pass a “multifaceted relief bill of a magnitude commensurate with the challenges our economy faces,” the letter urges.

The record-setting amount of spending and money-printing is understandably giving some finance experts serious concerns. In a tweet yesterday, precious metal commentator Jim Rickards remarked that Bernanke and Yellen’s proposals are not “stimulus” but “slow-mo ruin.”

These two wrote a letter to Congress (signed by many others) saying $10 trillion (fiscal+monetary) “stimulus” is not enough. We need more, more, more. Would someone please explain to them that we’re getting spending and money printing but it’s not “stimulus.” It’s slo-mo ruin. pic.twitter.com/O7eIdqCfHz

— Jim Rickards (@JamesGRickards) June 16, 2020

You’re welcome to disagree with Rickards, of course, but there’s no denying that we’re in uncharted financial and economic waters right now. In my eyes, that’s more than enough reason to make sure your portfolio has adequate exposure to gold and gold mining stocks to help hedge against potential inflation, currency devaluation and a collapse in equity prices.

Unintended Consequences of Fed Policies: Zombie Firms?

More than half of the $3 trillion in rescue funds authorized by Congress has so far been distributed, and there are now reports that President Donald Trump is considering a $1 trillion infrastructure package.

Meanwhile, the Fed announced this week that it will begin buying individual corporate bonds on top of the corporate debt ETFs it’s already purchased. It has the ability to buy up to $750 billion worth of corporate credit through its Secondary Market Corporate Credit Facility (SMCCF).

Thanks to all this buying, the bank’s balance sheet has skyrocketed past $7 trillion, representing nearly a third of the entire U.S. economy. That’s up significantly from 6 percent of GDP in 2006, when Alan Greenspan vacated the Fed.

click to enlarge

Combined with near-zero interest rates, these actions have prompted a tidal wave of corporate borrowing. In the first five months of 2020, U.S. firms have issued over $1.12 trillion in investment-grade debt. That’s more the total borrowing amount for all of 2019. And remember, this is only investment-grade. If we included lower-rated bonds, the figures would be even higher.

click to enlarge

As a result, we may see an increase in the share of “zombie” firms, or those whose “debt servicing costs …read more

The Math Is on Investors' Side

market looks due for a short term correction
click to enlarge

The rally that ended on Thursday was “one of the greatest surges off a major low ever,” according to LPL. And when this happened in the past, a drawdown was “perfectly normal.”

Between 1957 and now, in fact, the average drawdown after such a move was minus 10.3 percent. The median drawdown was minus 9.3 percent.

Last week’s correction, in other words, was expected. Mean reversion is a powerful indicator we regularly use to detect buy and sell signals.

Long-Term, Stocks Still Look Relatively Calm

Everything I just said applies only to the short term. Over the long term, it’s a different story.

Below is an oscillator chart similar to the one above, but instead of looking at the 60-day trading period over five years, it looks at the year-over-year percent change for the 20-year period.

As you can see, Thursday’s selloff didn’t even amount to a blip. The market was unchanged at 0.35 standard deviations. It was a non-event. So once again, a long-term investment horizon makes sense.

market is not overbought on a long-term basis
click to enlarge

Fed Has Declared War on the COVID-19 Economy

Another reason why I’m still bullish on stocks? The Federal Reserve has declared financial war on the COVID-19 economy. In the words of Jerome Powell, the Fed has “forcefully, proactively and aggressively” utilized every financial weapon at its disposal, from record-low interest rates to unprecedented money-printing.

jerome powell on cnbc

Many, including myself, have been critical of some of these decisions, but the truth is that Powell & Co. have little other choice. A staggering 93 percent of the world’s economies are now in recession due to the virus, according to the World Bank’s flagship

Most baseball fans know that the New York Yankees is the winningest team in MLB history. Of the 18,426 games it’s played since 1901, it’s won 10,378, or about 57 percent of them.

The Yankees have also won the most World Series championships. Between 1903 and 2019, the team has lifted the Commissioner’s Trophy a record 27 times, a win rate of 23.5 percent. (The 1994 World Series was cancelled due to a strike.)

As impressive as this track record is, it doesn’t come close to the U.S. stock market’s.

Over the past 90 years, the S&P 500 Index has ended the year up 61 times, for a win rate of 68 percent, or a little more than two-thirds of the time.

This means, of course, that the market has statistically ended the year down one out of every three times. It’s even rarer for it to sink lower two or more years in a row. This happened in the periods 1929 – 1932, 1939 – 1941, 1973 – 1974 and 2000 – 2001.

The implication of all this is that it’s historically been a winning strategy to bet on high-quality U.S. stocks over the long term. As I shared with you last month, there have been only three major instances when the S&P 500 delivered negative returns for the 10-year period—the two most notable being the Great Depression and the Great Recession. Had you cashed out during any other period after holding your S&P stocks for 10 years or longer, you would have seen a profit.

Thursday’s Stock Correction Was a Non-Event, According to Math

You can probably guess where I’m going with this. Stocks just had an incredibly volatile week, following the best 50-day rally in S&P history. Last Thursday, the market sold off close to 6 percent, its worst one-day trading session since March 16. The only stock to end in the black was Kroger, essentially flat at 0.4 percent.

Some wonder if we’re in store for a new bear market.

Analysts at LPL Financial addressed this very topic last week. Stocks were extremely overbought, up an astounding 4.78 standard deviations for the 60-day rolling period over the past five years. This flashed a screaming sell signal, and according to the math, a substantial pullback was expected.

click to enlarge

The rally that ended on Thursday was “one of the greatest surges off a major low ever,” according to LPL. And when this happened in the past, a drawdown was “perfectly normal.”

Between 1957 and now, in fact, the average drawdown after such a move was minus 10.3 percent. The median drawdown was minus 9.3 percent.

Last week’s correction, in other words, was expected. Mean reversion is a powerful indicator we regularly use to detect buy and sell signals.

Long-Term, Stocks Still Look Relatively Calm

Everything I just said applies only to the short term. Over the long term, it’s a different story.

Below is an oscillator chart similar to the one above, but …read more

Why We're Overweighting Renewable Energy

Global Oil Demand May have Peaked in 2019
click to enlarge

“The coronavirus-driven demand shock will probably keep a lid on oil prices for the next six to 12 months,” Barnett and Yilmaz wrote in a research report dated June 4, “and structural changes stemming from the crisis may permanently reset the bar lower.”

But what “structural changes”?

Working from Home

Some see the rise of remote working as the biggest threat to oil demand going forward. Among the many companies that have already told their employees they can now work from home—permanently, if they choose to—are Twitter, Square, Facebook, Shopify and Coinbase.

This may be good for shares of Zoom and other teleconferencing companies, but not for oil demand.

Let’s put this in context: About 45 percent of each barrel of refined oil is used to make gasoline. So when working from home becomes the norm for a large percentage of people, it’s only natural that a substantial amount of oil demand will be wiped out.

And that’s before we factor in the growing popularity of electric vehicles (EV), which is also taking a bite out of oil consumption. Shares of EV-maker Tesla have surged more than 370 percent in the 12-month period through June 10, are just today cracked $1,000 for the first time ever, a sign that investors may be betting heavily on the electrification of automobiles.

Renewable Energy Surpassed Coal in 2019

Oil isn’t the only fossil fuel that’s under threat from advancing renewable energy technology, of course. Coal use in the U.S. has been in decline for years now, and in 2019, electricity generated from renewable sources such as wind and solar surpassed coal for the first time in over 130 years, according to a May report by the U.S. Energy Information Administration (EIA). U.S. coal consumption fell for the sixth straight year to 11.3 quadrillion British thermal units (quads), the lowest level since 1964, while renewable energy consumption rose for the fourth straight year to record-high of 11.5 quads.

U.S. Renewable Energy Consumption Surpeassed Coal for First Time In 2019
click to enlarge

Even in the age of President Donald Trump, who favors fossil fuels such as coal, major renewable energy projects in the U.S. continue to move forward.

Industry leader Siemens Gamesa Renewable Energy, which currently controls about 68 percent of the U.S. wind market, just announced that it will be installing a vast offshore wind project off the coast of Virginia Beach. The so-called Dominion Energy Coastal Virginia Offshore Wind project, described as the “largest offshore wind project” in the U.S., will use the Spain-based company’s new SG 14-222 DD turbines, which feature blades measuring an incredible 108 meters (354 feet).

Siemens Gamesa's Monster Offshore Wind Turbine to be Commercially Available in 2024

To give you some idea of how massive this machine is, the Statue of Liberty clocks in at 305 feet, meaning each blade is about 50 feet longer. Meanwhile, the turbine’s “swept area,” or the area in square meters of the rotor, is equivalent to approximately seven NFL football fields.

Although the exact number of turbines that will be installed off the coast of Virginia has not yet been revealed, it’s worth pointing out that each SG 14-222 DD turbine is able to generate enough electricity to power around 18,000 average households annually, according to Siemens.

The turbine is expected to be commercially available in 2024, and the Virginia Offshore project is slated to be completed by 2026.

We also happen to like Siemen’s main competitor, Vestas Wind Systems. The Denmark-based company, which controls about 12 percent of the U.S. market at the moment, has had strong sales growth in 2020 with a record-high order backlog, according to James Evans, renewables analyst at Bloomberg Intelligence. Besides healthy sales, a “growing service business adds stability to overall revenue,” Evans says.

Both Siemens Gamesa and Vestas were among the top 20 holdings in our

It may not feel like it, but West Texas Intermediate (WTI) oil just posted its best month on record. The American benchmark for crude soared more than 88 percent in May, from $18.84 per barrel to $35.50, as businesses cautiously began to reopen and people returned to work following the coronavirus lockdown.

Even so, global oil demand may never fully recover to pre-coronavirus levels, according to some analysts. I believe this makes alternative and renewable energy producers even more attractive from a long-term investment point of view.

Demand for oil in 2020 may end up being 10 percent lower than the previous year, according to estimates by Bloomberg Intelligence analysts Rob Barnett and Salih Yilmaz. What’s more, oil consumption could very well have peaked in 2019 at about 100 million barrels per day.

click to enlarge

“The coronavirus-driven demand shock will probably keep a lid on oil prices for the next six to 12 months,” Barnett and Yilmaz wrote in a research report dated June 4, “and structural changes stemming from the crisis may permanently reset the bar lower.”

But what “structural changes”?

Working from Home

Some see the rise of remote working as the biggest threat to oil demand going forward. Among the many companies that have already told their employees they can now work from home—permanently, if they choose to—are Twitter, Square, Facebook, Shopify and Coinbase.

This may be good for shares of Zoom and other teleconferencing companies, but not for oil demand.

Let’s put this in context: About 45 percent of each barrel of refined oil is used to make gasoline. So when working from home becomes the norm for a large percentage of people, it’s only natural that a substantial amount of oil demand will be wiped out.

And that’s before we factor in the growing popularity of electric vehicles (EV), which is also taking a bite out of oil consumption. Shares of EV-maker Tesla have surged more than 370 percent in the 12-month period through June 10, are just today cracked $1,000 for the first time ever, a sign that investors may be betting heavily on the electrification of automobiles.

Renewable Energy Surpassed Coal in 2019

Oil isn’t the only fossil fuel that’s under threat from advancing renewable energy technology, of course. Coal use in the U.S. has been in decline for years now, and in 2019, electricity generated from renewable sources such as wind and solar surpassed coal for the first time in over 130 years, according to a May report by the U.S. Energy Information Administration (EIA). U.S. coal consumption fell for the sixth straight year to 11.3 quadrillion British thermal units (quads), the lowest level since 1964, while renewable energy consumption rose for the fourth straight year to record-high of 11.5 quads.

click to enlarge

Even in the age of President Donald Trump, who favors fossil fuels such as coal, major renewable energy projects in the U.S. continue to move forward.

Industry leader Siemens Gamesa Renewable …read more

Airline Stocks Just Posted Their Best Week on Record

2.5 million payrolls added to U.S. economy in May
click to enlarge

Airline Investors Rebuff Buffett

President Donald Trump addressed the blowout jobs numbers in a press conference Friday, comparing the U.S. economy to a “rocket ship.” Economists had been expecting the unemployment rate to jump higher in May, possibly to as much as 20 percent, but it ended up falling last month, from 14.7 percent in April to 13.3 percent.

Trump praised the domestic airline industry, saying carriers are recovering nicely with the economic reopening. On Thursday, shares of American Airlines stock exploded an unbelievable 41 percent, the most on record for a single day, after the carrier said it would increase July flights 74 percent compared with this month. Meanwhile, more and more planes are returning to the sky, with the number of parked passenger aircraft dropping below 50 percent of all fleets in the U.S., Europe and China, according to Bloomberg.

A one-time

Today I’d like to start by lending my voice in support of those who seek to bring attention to and rectify the deeply rooted societal inequities that contributed to the senseless killings of George Floyd, Breonna Taylor, Ahmed Aubrey and others. Racism has no place in America. Full stop.

Many Americans understand and empathize with the outrage, even if they don’t necessarily agree with the looting and violence that have defined some of the protests.

A vast majority of the demonstrators want only to exercise their First Amendment rights peacefully, and it’s unfortunate when a few bad actors are allowed to hijack the protests.

Like the coronavirus pandemic and economic downturn, the civil unrest has generated a lot of fear and uncertainty among Americans.

But there are signs that the worst is behind us. The daily rate of new coronavirus cases in the U.S. has been marginally decreasing. And on Friday, the Labor Department reported that the U.S. added a staggering 2.5 million payrolls in May, suggesting a strong economic recovery is underway.

Much work still needs to be done, but I’m equally confident a satisfactory solution to the unrest can be reached.

click to enlarge

Airline Investors Rebuff Buffett

President Donald Trump addressed the blowout jobs numbers in a press conference Friday, comparing the U.S. economy to a “rocket ship.” Economists had been expecting the unemployment rate to jump higher in May, possibly to as much as 20 percent, but it ended up falling last month, from 14.7 percent in April to 13.3 percent.

Trump praised the domestic airline industry, saying carriers are recovering nicely with the economic reopening. On Thursday, shares of American Airlines stock exploded an unbelievable 41 percent, the most on record for a single day, after the carrier said it would increase July flights 74 percent compared with this month. Meanwhile, more and more planes are returning to the sky, with the number of parked passenger aircraft dropping below 50 percent of all fleets in the U.S., Europe and China, according to Bloomberg.

A one-time airline operator himself, Trump also singled out Warren Buffett, who announced in early May that he sold his positions in the four major carriers due to the spread of the coronavirus.

Buffett “should have kept airline stocks because the airline stocks went through the roof today,” the president said.

He’s not wrong. I normally urge investors to follow the money, but it’s a good thing that they chose not to follow Buffett’s lead this time. Since we learned of his departure, investors have flooded into airline equities, pushing them up 53.5 percent in intraday trading Friday.

In fact, the S&P 500 Airlines Index just increased 35 percent this week alone, its “biggest on record and seven times the broader stock market’s five-day gain,” writes Bloomberg’s Nancy Moran.

click to enlarge

As I shared with you last month, a recovery in commercial air travel is well underway. …read more

Emerging Technologies to Drive Silver Demand

silver ended may 2020 with the biggest monthly gain since 2011
click to enlarge

The question now is whether the rally can continue along with economic improvement, or whether it’s too late to start participating. I believe there’s still a lot of runway left, especially when you consider the growing need for silver in emerging technologies such as 5G wireless networks and photovoltaic (PV) cells, the building block of solar panels.

Silver ETF Holdings at an All-Time High

Silver started June in overbought territory based on the 14-day relative strength index (RSI), but that didn’t seem to deter investors. Global ETFs backed by physical silver have added some 142 million ounces since the metal dipped below $12 an ounce in mid-March. Holdings now stand at an incredible 746 million ounces, the most on record, according to Bloomberg data.

Interestingly, if you look at the chart below, silver ETF holdings appear to have begun tracking the price not of silver, but of gold.

silver ETF holdings are tracking gold price to all-time highs
click to enlarge

This suggests to me that some investors are using the white metal as a more affordable safe haven and diversifier than gold. But there’s more to the story.

Increased Silver Demand in Industrial Applications, Most Notably Solar

Like copper, nickel, lithium, cobalt and other metals, silver is set to become a major beneficiary of emerging industrial applications.

That includes sources of renewable energy, and solar specifically, which continues to ramp up around the globe in response to a combination of carbon emissions legislation and a rapid decrease in the cost of “green” electricity.

According to a

The price of silver soared in May, jumping more than 19 percent on safe haven demand as well as increased expectations of a swift economic recovery, given its many industrial applications. Not only was this silver’s best month since 2011, but it also marked an impressive turnaround for the white metal that just recently plunged to a more-than 10-year low. From March 18 through June 1 of this year, silver soared more than 52 percent, erasing all of its losses due to the coronavirus pandemic.

click to enlarge

The question now is whether the rally can continue along with economic improvement, or whether it’s too late to start participating. I believe there’s still a lot of runway left, especially when you consider the growing need for silver in emerging technologies such as 5G wireless networks and photovoltaic (PV) cells, the building block of solar panels.

Silver ETF Holdings at an All-Time High

Silver started June in overbought territory based on the 14-day relative strength index (RSI), but that didn’t seem to deter investors. Global ETFs backed by physical silver have added some 142 million ounces since the metal dipped below $12 an ounce in mid-March. Holdings now stand at an incredible 746 million ounces, the most on record, according to Bloomberg data.

Interestingly, if you look at the chart below, silver ETF holdings appear to have begun tracking the price not of silver, but of gold.

click to enlarge

This suggests to me that some investors are using the white metal as a more affordable safe haven and diversifier than gold. But there’s more to the story.

Increased Silver Demand in Industrial Applications, Most Notably Solar

Like copper, nickel, lithium, cobalt and other metals, silver is set to become a major beneficiary of emerging industrial applications.

That includes sources of renewable energy, and solar specifically, which continues to ramp up around the globe in response to a combination of carbon emissions legislation and a rapid decrease in the cost of “green” electricity.

According to a recent report by CRU Consulting, solar power generation will increase to 1,053 terawatt hours (TWh) by 2025, close to double the amount that was generated in 2019. Amazon alone is planning five major solar projects around the world, including its first in China, as the retail giant seeks to reach 80 percent renewable energy by 2024 and 100 percent by 2030. Once completed, these five projects will generate 1.2 million megawatt hours (MWh) of energy every year, or enough to power 113,000 average U.S. homes, according to a press release.

click to enlarge

I expect this to be a huge boon to silver, which is used to manufacture the all-important PV cells found in solar panels. Between now and 2030, PV manufacturers are projected to consume a staggering 888 million ounces of silver, according to CRU. To put …read more

Wheels Up! Economic Recovery Could Be Faster Than Expected

number of commercial air passengers screened daily by TSA has been rising
click to enlarge

Some carriers have begun to announce plans to expand routes. In a

Sometimes it can be challenging to remain optimistic, to look past the never-ending raft of negative headlines and see the upside.

Last week was no exception.

The number of COVID-19 deaths in the U.S. exceeded 100,000, a significant toll, with cases continuing to climb in new hot spots.

Meanwhile, political and racial tensions are running high. Violent protests erupted in Minneapolis and other U.S. cities (including U.S. Global Investors’ hometown of San Antonio) in response to the police killing of George Floyd. The incident also led to an escalation of the ongoing feud between Twitter and President Donald Trump, when Twitter blocked one of the president’s tweets for violating its rule about “glorifying violence.”

And across the Pacific, protests resumed in Hong Kong following China’s passage of a national security law that, among other things, enables Chinese law enforcement officials to operate within the special administrative region. The U.S. State Department announced that it no longer considers Hong Kong to have reasonable autonomy under Chinese rule.

You get the idea.

As troubling as these developments are, it’s important not to lose sight of the good that appears to be taking place right now. Investors that focus only on the negative tend to miss out on the opportunities.

Record Inflows into Airline Stocks

Consider airlines. Shares of commercial carriers flew up 11.75 percent last Tuesday on renewed hopes that a vaccine against the novel coronavirus can be developed as soon as year-end.

Dr. Anthony Fauci, the leading U.S. expert on infectious diseases, shared his outlook last Wednesday, telling CNN that “we have a good chance… that we might have a vaccine that would be deployable by the end of the year, by December and November.”

Airline stocks, as measured by the NYSE Arca Airline Index, are still down some 57 percent from their trading range soon before travel restrictions grounded flights. This, I believe, represents the greatest buying opportunity in airline stocks since at least 9/11.

Indeed, we’ve been seeing record daily inflows into airline equities in the two months since bookings began to make their recovery. As of May 29, positive inflows had found their way into airlines for a remarkable 62 straight days, according to Eric Balchunas, senior ETF analyst at Bloomberg.

The number of passengers screened daily in the U.S. by the Transportation Security Administration (TSA) has steadily been gaining momentum since carriers were first grounded in an effort to limit the spread of the pandemic. On May 31, nearly 353,000 people boarded commercial flights in the U.S., up 303 percent from a low of 87,534 people on April 14, and well above the 10-day moving average.

click to enlarge

Some carriers have begun to announce plans to expand routes. In a press release dated May 28, Southwest Airlines said it would resume some flights to Mexico and the Caribbean on July 1, and by the fall would add “more frequencies and more nonstop flight options” for business travelers from Phoenix, Denver, Las Vegas and Nashville. Effective …read more

Growth Is Crushing Value Right Now, but Remember to Take a Long-Term Horizon

Ratio between growth and value stocks now wider than during tech bubble
click to enlarge

Here’s another way to look at it: So far this year, growth stocks are up 1.8 percent through May 27. Meanwhile, value stocks are still down more than 16.2 percent.

What this suggests to me is that investors are seeking companies that are forecasting faster-than-average profits in an effort to recoup the losses they may have seen between February 19 and March 23 of this year.

As the name implies, growth companies are those that may be growing at a faster rate than the overall market. Although there are exceptions, they tend to have lower dividend yields than value stocks because they’re reinvesting their current revenue toward expanding their businesses. Growth names can appear in any sector or industry, but they’re more prevalent in biotechnology, data processing, health care equipment and other cutting-edge industries.

Value stocks, on the other hand, are those that appear to be undervalued relative to their peers. They often have attractive dividend yields and low price-to-earnings (P/E) ratios. Growth stocks currently have a very high P/E ratio of 29.36, whereas value stocks look more affordable at 16.38. Think banks, energy and utilities.

Keep a Long-Term Horizon

For many investors, the strategy of rotating heavily into growth stocks may make a lot of sense. Economic sentiment is starting to shift on reopening optimism and hopes that a coronavirus vaccine will be developed sooner rather than later.

But for others, especially those seeking income, value stocks may have more long-term benefits.

Here at U.S. Global Investors, we prefer GARP investing, or growth at a reasonable price, which combines characteristics of both growth and value investing. GARP was the investment style favored by legendary money manager Peter Lynch, who delivered a remarkable compound annual growth rate (CAGR) of 29 percent between 1977 and 1990.

We also don’t try to time the market, which often gets investors in trouble. Instead, we take a more long-term approach, focusing on high-quality stocks with strong fundamentals.

Take a look at the chart below, which shows you the S&P 500’s percent change from 10 years earlier. Since the mid-1930s, there have been only three major instances when the S&P delivered negative returns over a 10-year period, the two most notable being the Great Depression and the Great Recession.

Stock have rarely been negative for any rolling 10-year period
click to enlarge

The takeaway here is that a long-term investment strategy has historically succeeded in building wealth. In all but three time periods over the past 80+ years, had you bought high-quality S&P stocks and held them for at least 10 years, you were much more likely to see a decent return on your investment than trying to time the market.

In fact, the average return over any 10-year period was 90.2 percent—nearly double the initial investment.

Stay Diversified

Investors with a long-term horizon should also ensure they are diversified in a range of equities and bonds. The classic allocation is 60 percent stocks, 40 percent bonds, but that’s a decision you must make based on your age, risk tolerance and investment goals.

The chart below, courtesy of JPMorgan, shows you the average one-year, five-year, 10-year and 20-year returns for three different portfolios—one that consists only of stocks, another of bonds and one that has a 50/50 mix of stocks and bonds.

Range of stock, bond and related total returns
click to enlarge

As you can see, stocks in the short term could potentially deliver total returns as high as 47 percent—or losses that were nearly as much. The volatility could be minimized with an allocation to fixed-income, a benefit that could be seen in the longer investment periods. The 50/50 blended portfolio was the only one that delivered positive returns in the five-year, 10-year and 20-year rolling periods.

Again, 50/50 may not be suitable for you, so use the chart simply as a general illustration of the benefits of diversification.

Those benefits may be improved even more with a 10 percent weighting in gold—with 5 percent in physical gold, the other 5 percent in gold mining stocks. For more on why an investment in gold may make a lot of sense right now, read my recent post, “You Can’t Just Print More Gold,” by clicking

Investors are betting on growth stocks over value stocks by a wider spread right now than at any other time since at least 1990, including during the tech bubble.

The ratio between the Russell 1000 Growth Index and Russell 1000 Value Index reached a series high of 1.70 on May 15. That’s above the previous record of 1.68 set in March 2000, when the market peaked before plunging 50 percent.

click to enlarge

Here’s another way to look at it: So far this year, growth stocks are up 1.8 percent through May 27. Meanwhile, value stocks are still down more than 16.2 percent.

What this suggests to me is that investors are seeking companies that are forecasting faster-than-average profits in an effort to recoup the losses they may have seen between February 19 and March 23 of this year.

As the name implies, growth companies are those that may be growing at a faster rate than the overall market. Although there are exceptions, they tend to have lower dividend yields than value stocks because they’re reinvesting their current revenue toward expanding their businesses. Growth names can appear in any sector or industry, but they’re more prevalent in biotechnology, data processing, health care equipment and other cutting-edge industries.

Value stocks, on the other hand, are those that appear to be undervalued relative to their peers. They often have attractive dividend yields and low price-to-earnings (P/E) ratios. Growth stocks currently have a very high P/E ratio of 29.36, whereas value stocks look more affordable at 16.38. Think banks, energy and utilities.

Keep a Long-Term Horizon

For many investors, the strategy of rotating heavily into growth stocks may make a lot of sense. Economic sentiment is starting to shift on reopening optimism and hopes that a coronavirus vaccine will be developed sooner rather than later.

But for others, especially those seeking income, value stocks may have more long-term benefits.

Here at U.S. Global Investors, we prefer GARP investing, or growth at a reasonable price, which combines characteristics of both growth and value investing. GARP was the investment style favored by legendary money manager Peter Lynch, who delivered a remarkable compound annual growth rate (CAGR) of 29 percent between 1977 and 1990.

We also don’t try to time the market, which often gets investors in trouble. Instead, we take a more long-term approach, focusing on high-quality stocks with strong fundamentals.

Take a look at the chart below, which shows you the S&P 500’s percent change from 10 years earlier. Since the mid-1930s, there have been only three major instances when the S&P delivered negative returns over a 10-year period, the two most notable being the Great Depression and the Great Recession.

click to enlarge

The takeaway here is that a long-term investment strategy has historically succeeded in building wealth. In all but three time periods over the past 80+ years, had you bought high-quality S&P stocks and held them for at least 10 years, you were much more …read more