The Yield Curve Just Inverted for the First Time in Years. Time to Reconsider Risk?

Spread Between 5-Year and 3-Year Treasury Yield Turned Negative for First Time Since 2007
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Meanwhile, the more closely watched spread between the 10-year yield and two-year yield, though positive, sat at a lowly 15 basis points on Monday, the flattest it’s been in more than 11 years. All nine recessions since 1955 have been preceded by an inversion of the 10-year and two-year Treasury yields.

I believe the flattening yield curve is just one among a number of signs that we’re entering a more risk-off investing environment (one in which investor appetite for riskier assets, such as stocks, decreases). The recent trade war ceasefire between the U.S. and China is encouraging, but challenges still persist, including rising U.S. interest rates, Brexit, skyrocketing debt and a purchasing manager’s index (PMI) that’s steadily weakened over the past eight months.

All things considered, I think it might be time for investors to consider getting more defensive as we proceed further into the later stages of this business cycle, one of the longest in U.S. history. That means making sure you have exposure to assets that have historically done well during slowdowns in the economy and capital markets. Among my favorite are precious metals, particularly gold, and short-term, tax-free municipal bonds.

Municipal Bonds Have Outperformed Higher-Risk Corporate Bonds

Municipal bonds might have a reputation for being “boring,” but personally I don’t find anything boring about potentially limiting losses in my portfolio. That’s precisely what munis managed to do lately as stocks tumbled, many of them entering correction and even bear market territory. Short-term state and local debt, as measured by the Barclays Capital 3-Year Municipal Bond Index, delivered 0.3 percent in the two months ended November 30, while high-yield and investment-grade corporate debt lost 0.2 percent and 0.4 percent, respectively. Even the riskiest munis gained, according to Bloomberg data, helping investors staunch some of the declines they might have felt in their equity allocation.

Muni Bonds Outperformed Corporate Debt on Stock Volatility
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Speaking of risk, munis have historically had a much lower rate of default than corporate bonds. Between 1986 and 2016, the muni default rate was only 0.04 percent, whereas corporates had one 50 times higher at 2.03 percent, according to Moody’s. On top of that, munis provide income that’s tax-free at the federal and often state levels, unlike corporate securities, which are subject to taxes.

Consider the Near-Term Tax Free Fund (NEARX)

Two months is admittedly a small sample size, so let’s take a longer view of munis’ performance using our

One of the most reliable indicators of an economic slowdown just flashed a warning sign this week. On Monday, the yield curve between the five-year Treasury yield and three-year Treasury yield inverted, or turned negative, for the first time since 2007. What this means is the shorter-maturity bond now pays more than the longer-maturity bond, suggesting investors believe the government is less likely to service the debt it owes in three years than in five years. Such an inversion has historically portended a recession sometime in the next six to 24 months.

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Meanwhile, the more closely watched spread between the 10-year yield and two-year yield, though positive, sat at a lowly 15 basis points on Monday, the flattest it’s been in more than 11 years. All nine recessions since 1955 have been preceded by an inversion of the 10-year and two-year Treasury yields.

I believe the flattening yield curve is just one among a number of signs that we’re entering a more risk-off investing environment (one in which investor appetite for riskier assets, such as stocks, decreases). The recent trade war ceasefire between the U.S. and China is encouraging, but challenges still persist, including rising U.S. interest rates, Brexit, skyrocketing debt and a purchasing manager’s index (PMI) that’s steadily weakened over the past eight months.

All things considered, I think it might be time for investors to consider getting more defensive as we proceed further into the later stages of this business cycle, one of the longest in U.S. history. That means making sure you have exposure to assets that have historically done well during slowdowns in the economy and capital markets. Among my favorite are precious metals, particularly gold, and short-term, tax-free municipal bonds.

Municipal Bonds Have Outperformed Higher-Risk Corporate Bonds

Municipal bonds might have a reputation for being “boring,” but personally I don’t find anything boring about potentially limiting losses in my portfolio. That’s precisely what munis managed to do lately as stocks tumbled, many of them entering correction and even bear market territory. Short-term state and local debt, as measured by the Barclays Capital 3-Year Municipal Bond Index, delivered 0.3 percent in the two months ended November 30, while high-yield and investment-grade corporate debt lost 0.2 percent and 0.4 percent, respectively. Even the riskiest munis gained, according to Bloomberg data, helping investors staunch some of the declines they might have felt in their equity allocation.

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Speaking of risk, munis have historically had a much lower rate of default than corporate bonds. Between 1986 and 2016, the muni default rate was only 0.04 percent, whereas corporates had one 50 times higher at 2.03 percent, according to Moody’s. On top of that, munis provide income that’s tax-free at the federal and often state levels, unlike corporate securities, which are subject to taxes.

Consider the Near-Term Tax Free Fund (NEARX)

Two months is admittedly a small sample size, so let’s …read more

This Holiday Season, Make It Silver and Gold

What Thanksgiving Cranberries and Bitcoin Have in Common

Photo: Maor X | Creative Commons Attribution-Share Alike 4.0 International

Yesterday evening marked the beginning of Hanukkah. The Jewish festival of lights commemorates the reclamation of the Holy Temple in Jerusalem from the Syrian-Greeks in the second century BCE. According to accounts, after Judah and his forces liberated the temple, he found only one jar of oil, good for a single day’s lighting at the most. Miraculously, though, the oil lasted for an incredible eight days, which is why Hanukkah is celebrated for eight days and nights to this day. To all of my Jewish friends around the world, I wish you a Hanukkah Sameach!

Among many of the holiday’s well-known traditions, at least here in the U.S., is to give children chocolate coins. This arose from the centuries-old practice of parents giving real coins, or Hanukkah gelt, to their kids, who in turn were expected to give them to their teachers.

I believe this is a beautiful custom. Whether you observe Hanukkah, Christmas, Eid al-Fitr, Diwali or any number of other religious holidays around the world, gifting your children and grandchildren coins of precious metals such as gold or silver could be made into a tradition in your own family. I encourage you to see the unique gifts that Kitco Metals offers in both silver and gold.

Holiday Deals at Your Local Coin Dealer

Take a look at silver. The white metal is on sale right now, trading at a little more than $14 an ounce. That’s the most affordable it’s been in three years. Not only does a silver coin cost quite a bit less than, say, a video game, it lasts much, much longer. And unlike a video game, it has the potential to rise in value.

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Gold is admittedly more expensive, trading just under $1,240 as of today. But there again, if you’re already planning to go all out on gift shopping this holiday season, you might as well make it something that’s truly memorable, holds it value and lasts forever.

It need not be a coin. Pure, 24-karat gold jewelry holds its value just as well as a coin, and it has the added bonus of being wearable. I’ve told you about Menë, the newcomer that aims to disrupt the fine jewelry industry. The Toronto-based company just announced that it surpassed 10,000 orders from customers in more than 50 countries, all less than a year since going public in January 2018.

Speaking of holding its value, notice how the price of gold has held up well against stock market volatility this year. Gold sentiment among some investors is room temperature right now, but it’s important to put things in perspective. Compared to some popular internet stocks, the metal’s losses have not been nearly as sharp or deep. From its 2018 peak in early April to today, gold has declined around 10 percent. Facebook, meanwhile, has dropped close to …read more

Talking Tech With Pulitzer Prize Nominee Michael Robinson

Michael Robinson, chief technology strategist of Money Map Press, is a lot of things: devoted son and father, technologist, avid skier and gun enthusiast, accomplished blues guitarist, Pulitzer Prize nominee.

Readers of his popular newsletters know him for his mantra, “The road to wealth is paved with tech.” As editor of Strategic Tech Investor, Nova-X Report and Radical Technology Profits, Michael has helped curious investors get in early on small-cap and micro-cap names involved in biotech, defense, cannabis research and more.

I got to see Michael’s presentation at the Black Diamond Investment Conference in October and was impressed by his energy, interesting life story and deep knowledge of niche markets.

Below are snippets from our recent discussion, which touches on topics ranging from trap shooting to cannabis legalization to blockchain technology.

Below are snippets from our recent discussion, which touches on topics ranging from trap shooting to cannabis legalization to blockchain technology.

Tell us about your start in military tech and biotech.

I grew up in a military household. My dad was a Marine Corps officer, and later he became the senior military editor at Aviation Week & Space Technology. He was among the earliest to write about the Strategic Defense Initiative (SDI), popularly known as Star Wars. So as a high schooler, I was exposed to all of these exotic defense technologies—materials, sensors, warheads and the like—which really gave me a leg up.

My dad and I ran a high-tech military newsletter in the 1980s. This put me in a position to visit Silicon Valley pretty regularly and talk with scientists and CEOs about cutting edge tech—materials that made battleships and submarines quieter, for example.

As a young auto analyst and reporter, I managed to break some big tech stories because I was willing to look away from the mainstream. The biggest story I did actually led to the firing of two executive vice presidents, which cost the bank close to $80 million. The New York Times and Wall Street Journal ended up having to cover the story, so that helped put me on the map.

I got involved in biotechnology later through my work at what was then the Oakland Tribune. The biotech sector was brand new in the mid-80s, and I was in California where it was all happening. While there, I did a five-part series on Betaseron, the first FDA-approved biotech drug to treat multiple sclerosis (MS).

How did you make the leap to the financial world?

That just felt like the natural next step. Every time I left a Silicon Valley presentation on some new tech, I would think: “That’s really cool, but how can you make money off of it?” So even though I consider myself a technologist, I’m always looking at the financial angle.

What’s more, I served on the advisory board of a venture capital company. The experience gave me a different way of evaluating startups than a standard financial analyst, who might be trained only to do ratio analysis and things like that. There’s nothing wrong with ratio analysis, but it’s not going …read more

What Thanksgiving Cranberries and Bitcoin Have in Common

cost of all items in the 12 days of christmas rose for 16th straight year
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Interestingly, just as the U.S. Bureau of Labor Statistics excludes food and energy from its “core” consumer price index (CPI) because they tend to be more volatile than the other items, PNC excludes the price of swans from its Christmas index for the very same reason.

The gift that rose the most from Christmas 2017 was the six geese a-laying. They’ll set you back $390 this year, 8.3 percent more than last year.

The gift that fell the most, meanwhile, was the five gold rings. They cost $750, down 9.1 percent from $825 in 2017. That’s good news for jewelers such as newcomer

Football is as much a part of Thanksgiving as turkey and family are, and nearly as old as the holiday itself. It was President Abraham Lincoln who proclaimed Thanksgiving a national holiday in 1863, saying that he hoped all Americans would carve out some time to bless the “widows, orphans, mourners or sufferers in the lamentable civil strife in which we are unavoidably engaged.”

In 1876, a little more than a decade after the end of that “civil strife,” students from Yale and Princeton met in Hoboken, New Jersey, to play what is believed to be the first football game held on Thanksgiving Day. Yale ended up besting its fellow Ivy League competitor, two “goals” to zero.

At the time, “football” still more closely resembled rugby than the sport we enjoy today. But a tradition was born. On subsequent Thanksgivings, the Yale-Princeton matchups generated so much cash in ticket sales that they funded the two universities’ athletic programs for the rest of the year.

The model was such a success that the National Football League (NFL) made sure to carry on the tradition upon its founding in 1920. Professional football has been played on Turkey Day ever since, except for those in the years from 1941 to 1945.

The Cost of Thanksgiving Just Came Down for the Third Straight Year…

For most families, football comes second to the real Thanksgiving pastime—eating. But unlike ticket prices for an NFL game, which have gone up about 50 percent in the past 10 years, the cost of enjoying a Thanksgiving meal got slightly cheaper in 2018.

According to the American Farm Bureau Federation (AFBF), the cost of a typical Turkey Day feast for 10 people deflated about $0.22 from last year to $48.90. That’s the third straight year of declines, and the lowest level since 2010.

More affordable energy and an oversupply in the turkey market contributed to lower food prices, as did the trade dispute between the U.S. and China. You would think that tariffs on Chinese products would raise prices, but as the Wall Street Journal explains, “China’s retaliatory moves are having the opposite effect.”

“Tariffs on U.S. agricultural products have dampened Chinese demand, boosting supplies of some staples of the Thanksgiving table,” writes the WSJ’s Justin Lahart. Because of the supply glut, cranberry growers in particular have seen prices fall below the cost of production, estimated at $35 per barrel—which is bad for the farmers, obviously, but good for American consumers. As much as 25 percent of the U.S. supply of cranberries had to be dumped this season in order to support prices.

…But Christmas Continues to See Inflation

Cranberries are one thing, a partridge in a pear tree is another.

Every year for the past 35 years, PNC Financial Services has priced out all the items listed in the holiday song “The 12 Days of Christmas.” The cost of all 364 gifts, from turtle doves to pipers piping, rose 1.2 percent this year to $39,094.93. That’s almost double what …read more

Freezing Temperatures Could Heat Up Natural Gas Prices

Natural gas prices exploded
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Freezing temperatures increase demand for heating, much of which is provided by natural gas. In January of this year, when temperatures fell below the average in many parts of the U.S., demand reached a single-day record of 150.7 billion cubic feet, according to the EIA. I can’t say we’ll beat this record again in the coming months, but forecasts for more freezing weather this Thanksgiving week and beyond should support additional moves to the upside.

What kind of moves? Says Jacob Meisel, chief weather analyst at Bespoke Weather Services, the price could get to $7 or $8 per MBtus, levels we haven’t seen since 2008. “This looks like a capitulation move today, but if cold weather really takes off, the sky is the limit,” Meisel told CNBC.

Oil Selloff Steepest in Three Years, “Overdone”

Natural gas wasn’t the only commodity that broke records last week. On Tuesday, West Texas Intermediate (WTI) crude oil ended an extraordinary 12 straight days of losses, settling at a 2018 low of $55.69 per barrel, down more than 27 percent from its 2018 high in early October. Triggered by concerns of a global demand slowdown, the plunge is oil’s steepest in three years, and a stunning reversal from last month’s calls for $100-per-barrel crude.

The bears appear to have overreacted, though. “Crude-oil-position liquidations have never been this extreme, indicating the purge in WTI futures is overdone,” writes Business Intelligence strategist Mike McGlone, adding that petroleum markets have “never experienced a comparable decline over a similar period.”

World Needs the Equivalent of Another Russia’s Worth of Crude

Again, the oil selloff halted last Tuesday, the same day the International Energy Agency (IEA) announced its estimate that U.S. shale will need to add the equivalent of Russia’s entire oil production by 2025 to prevent a global shortage. In its flagship

Here in San Antonio, the temperature hit a bone-chilling low of 27 degrees last Wednesday, breaking a 102-year-old record for mid-November. An out-of-state visitor, Cornerstone Macro’s Head of Portfolio Insights Stephen Gregory, speculated that the Central Texas temperature, ordinarily mild this time of year, was down more than three standard deviations. I didn’t make the calculation, but my guess would be about the same.

With temperatures so low, it’s perhaps no surprise that natural gas had one of its best days in years. Its price popped almost 18 percent last Wednesday—before falling nearly as much on Thursday. The Energy Information Administration (EIA) reported that natural gas storage in the lower 48 states was below the five-year average as of October 31. This, combined with a stronger-than-expected start to winter, prompted traders to push prices to a four-year high of $4.84 per million British thermal units (MBtu). Meanwhile, natural gas futures trading hit an all-time daily volume record of 1.2 million contracts, according to CME Group.

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Freezing temperatures increase demand for heating, much of which is provided by natural gas. In January of this year, when temperatures fell below the average in many parts of the U.S., demand reached a single-day record of 150.7 billion cubic feet, according to the EIA. I can’t say we’ll beat this record again in the coming months, but forecasts for more freezing weather this Thanksgiving week and beyond should support additional moves to the upside.

What kind of moves? Says Jacob Meisel, chief weather analyst at Bespoke Weather Services, the price could get to $7 or $8 per MBtus, levels we haven’t seen since 2008. “This looks like a capitulation move today, but if cold weather really takes off, the sky is the limit,” Meisel told CNBC.

Oil Selloff Steepest in Three Years, “Overdone”

Natural gas wasn’t the only commodity that broke records last week. On Tuesday, West Texas Intermediate (WTI) crude oil ended an extraordinary 12 straight days of losses, settling at a 2018 low of $55.69 per barrel, down more than 27 percent from its 2018 high in early October. Triggered by concerns of a global demand slowdown, the plunge is oil’s steepest in three years, and a stunning reversal from last month’s calls for $100-per-barrel crude.

The bears appear to have overreacted, though. “Crude-oil-position liquidations have never been this extreme, indicating the purge in WTI futures is overdone,” writes Business Intelligence strategist Mike McGlone, adding that petroleum markets have “never experienced a comparable decline over a similar period.”

World Needs the Equivalent of Another Russia’s Worth of Crude

Again, the oil selloff halted last Tuesday, the same day the International Energy Agency (IEA) announced its estimate that U.S. shale will need to add the equivalent of Russia’s entire oil production by 2025 to prevent a global shortage. In its flagship “World Energy Outlook 2018,” the Paris-based group says that world oil consumption will increase significantly in the coming decades due to “rising …read more

Here's How We Discovered This Disruptive Gold Stock... Before It Went Public

A strengthening U.S. Dollar has been a headwind for gold
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Gold miners have felt the pressure, too. In the 12-month period as of November 12, the FTSE Gold Mines Index, which reflects the stock performance of producers from around the world, lost 17.66 percent.

This may have made it challenging for some gold investors to find promising stocks. As such, assets have dropped. Gold and precious metal ETFs in North America saw net outflows of 58 metric tons in 2018 through October 31, according to the World Gold Council (WGC).

But selling now is the wrong move, I believe. Gold stocks appear to be highly undervalued relative to the S&P 500 Index, and a sharp drop in the market could strongly boost demand for the yellow metal. This means it might be time to consider accumulating.

Meet Menē, Gold Jewelry Disruptor

For investors who wish to increase their exposure to gold, I believe our

If you’ve run into difficulties lately finding the best gold stocks to invest in, you’re not alone. Sentiment has been down. But there are still some very attractive opportunities out there in the goldfields, one of which I want to share with you.

First, a quick recap: The price of gold tested support of $1,200 an ounce on Monday as the U.S. dollar strengthened to a 16-month high, propelled by expectations of additional interest rate hikes. A stronger greenback, remember, weighs on gold as well as a number of other commodities, including oil, since they’re priced in dollars. I’ve inverted the dollar’s values in the chart below so it’s easier to see this relationship.


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Gold miners have felt the pressure, too. In the 12-month period as of November 12, the FTSE Gold Mines Index, which reflects the stock performance of producers from around the world, lost 17.66 percent.

This may have made it challenging for some gold investors to find promising stocks. As such, assets have dropped. Gold and precious metal ETFs in North America saw net outflows of 58 metric tons in 2018 through October 31, according to the World Gold Council (WGC).

But selling now is the wrong move, I believe. Gold stocks appear to be highly undervalued relative to the S&P 500 Index, and a sharp drop in the market could strongly boost demand for the yellow metal. This means it might be time to consider accumulating.

Meet Menē, Gold Jewelry Disruptor

For investors who wish to increase their exposure to gold, I believe our Gold and Precious Metals Fund (USERX) is an attractive option with a history of strong performance. USERX is actively managed, meaning we rely on fundamentals and on cultivating relationships with management teams to decide which companies go in and out of the fund.

One of those companies, the one I hinted at earlier, is a newcomer to the industry—Menē Inc.

You might not have heard the name Menē yet, but you could soon enough, especially if you’re in the market for fine jewelry.

Founded in 2017 by Roy Sebag, co-founder of gold financial services firm Goldmoney, and Diana Widmaier-Picasso, granddaughter of—you guessed it—Pablo Picasso, Menē ‘s mission is to disrupt the gold jewelry market by selling directly to the consumer and pricing its merchandise fairly and transparently. Unlike traditional sellers like Tiffany & Co. and Cartier, which sometimes have high premiums, Menē prices its jewelry based on the changing value of gold. It then charges a 15 percent to 20 percent design and production fee on top of that.

What also sets the company apart is that its jewelry—from earrings to necklaces, bracelets to charms—is made of 24-karat gold or platinum. No alloys, …read more

Midterm Elections: Gridlock Was the Best Possible Outcome

Stock markets have generally thrived under a divided government
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But in the short term, markets showed a lot of enthusiasm. The S&P 500 Index advanced more than 2 percent on Wednesday, marking the best post-midterm rally since 1982. Stocks got slammed only after the Federal Reserve announced more rate hikes were forthcoming.

I want to remind you that we’ve already entered the

Celebrated value investor Benjamin Graham, who mentored a young Warren Buffett, liked to say that the market is a voting machine in the short term, a weighing machine in the long term. Last week the market voted to reward stocks in the aftermath of the midterm elections, which gave Democrats control of the House and left the Senate in the hands of Republicans. This all but guarantees that gridlock will be the status quo in Washington, at least for the next two years.

A divided Congress might very well be the only time gridlock is a positive. Corporate gridlock can hold a company back from growing, and there’s not a soul alive who enjoys sitting in bumper-to-bumper traffic. The congestion in Austin, just north of our headquarters, is legendary, costing commuters as much as 43 hours a year. (This congestion could be improved with better infrastructure, which I’ll get to in a second.)

The truth is that markets favor divided government. Both Republican and Democratic presidents have had the greatest effects on stocks when Congress was split and gridlock prevailed, according to Bank of America Merrill Lynch data. Granted, such leadership makeups are rare, occurring for only a combined 11 years in the past 90, so I’ll be curious to see if the trend holds true.

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But in the short term, markets showed a lot of enthusiasm. The S&P 500 Index advanced more than 2 percent on Wednesday, marking the best post-midterm rally since 1982. Stocks got slammed only after the Federal Reserve announced more rate hikes were forthcoming.

I want to remind you that we’ve already entered the three most bullish quarters for stocks in the four-year presidential cycle. Average returns in the fourth quarter of year two have historically been 4 percent, followed by 5.2 percent in the first quarter of year three and 3.6 percent in the second quarter.

Record Votes, Record Campaign Spending

Voter turnout was abnormally high for a midterm election. Here in Texas, nearly 53 percent of registered voters cast ballots—a very strong showing thanks in large part to the much-publicized and heavily funded Senate race between Senator Ted Cruz and Congressman Beto O’Rourke.

Indeed, a whole lot of cash passed hands this cycle. For the first time in U.S. history, more than $5 billion was spent during a midterm election by candidates, political parties and other groups, according to the Center for Responsive Politics (CRP). That’s up almost 40 percent from spending levels in 2014. The biggest independent donor was billionaire Sheldon Adelson, founder and CEO of Las Vegas Sands, and wife Miriam, who shelled out more than $113 million in support of Republican candidates.

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Because it’s such a massive amount, it might help to put $5.2 billion into perspective. An estimated 113 million Americans participated in the midterm election, a new record, meaning roughly $46 was spent on each voter.

Here’s …read more

India's Booming Economy Expected to Firm Up Gold Demand

Price of gold surged in India on weaker rupee denting Diwali demand
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And there could be more rupee pain ahead. In a recent note to investors, UBS forecast that the Indian currency will likely remain under pressure as global oil prices stay elevated. India is a net importer of crude oil, which has risen more than 20 percent in the 12-month period, thanks to supply disruptions in Venezuela, Libya and elsewhere.

U.S. sanctions on major oil state Iran—India’s third largest supplier of crude following Iraq and Saudi Arabia—have also lifted prices. Those sanctions went into effect this week.

India’s Economy to Grow Faster Than China’s

Nevertheless, India’s economy is advancing at the world’s fastest pace right now. I believe this should have a positive effect on gold demand in the long term as the size of the country’s middle class expands. The International Monetary Fund (IMF) recently predicted the Indian economy this year to grow 7.3 percent, or 0.7 percentage points over China’s anticipated growth rate and an incredible 2.6 percentage points over emerging and developing economies on average. Next year India is expected to grow even faster, at 7.4 percent.

India projected to be fastest growing economy this year and next
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What’s more, India’s billionaire wealth increased 36 percent in 2017, according to a recent report by UBS. The number of billionaires in India rose by 19 to 119 in total. Again, I expect this to have a noticeable impact on gold demand, the greater this wealth builds.

Curious to learn more? Be sure to visit our slideshow:

Starting today, the five-day festival known as Diwali—literally, “a row of lights”—will be observed by millions of Hindus, Sikhs and Jains worldwide. A celebration of good triumphing over evil, the festival typically coincides with the Hindu new year. Regular readers of Frank Talk should know that Diwali is also an auspicious time to buy gold coins and jewelry as gifts for loved ones, and in the past the increased demand has been enough to move gold prices to the upside.

This year, however, demand for coins and jewelry was muted leading up to the fall festival on account of a weaker rupee relative to the U.S. dollar. This made the precious metal less affordable for some buyers. By the end of October, gold prices were at their highest level since September 2013, according to Reuters. Gold ordinarily goes for a premium in anticipation of Diwali, but this year many retailers reported trying to attract customers by offering discounts.

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And there could be more rupee pain ahead. In a recent note to investors, UBS forecast that the Indian currency will likely remain under pressure as global oil prices stay elevated. India is a net importer of crude oil, which has risen more than 20 percent in the 12-month period, thanks to supply disruptions in Venezuela, Libya and elsewhere.

U.S. sanctions on major oil state Iran—India’s third largest supplier of crude following Iraq and Saudi Arabia—have also lifted prices. Those sanctions went into effect this week.

India’s Economy to Grow Faster Than China’s

Nevertheless, India’s economy is advancing at the world’s fastest pace right now. I believe this should have a positive effect on gold demand in the long term as the size of the country’s middle class expands. The International Monetary Fund (IMF) recently predicted the Indian economy this year to grow 7.3 percent, or 0.7 percentage points over China’s anticipated growth rate and an incredible 2.6 percentage points over emerging and developing economies on average. Next year India is expected to grow even faster, at 7.4 percent.

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What’s more, India’s billionaire wealth increased 36 percent in 2017, according to a recent report by UBS. The number of billionaires in India rose by 19 to 119 in total. Again, I expect this to have a noticeable impact on gold demand, the greater this wealth builds.

Curious to learn more? Be sure to visit our slideshow:

7 Things to Know About Diwali

All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor.

…read more

The "Black Swan" Author Just Issued a Powerful Warning About Global Debt

The Black Swan author Nassim Taleb

By Photo:flickr/Joe Loong | Creative Commons Attribution 2.0 Generic

The world is more fragile today than it was in 2007. That’s the opinion of former derivatives trader Nassim Taleb, whose bestseller, The Black Swan, is about how people make sense of unexpected events, especially in financial markets. True to form, he made a whole lot of money after predicting the global financial crisis more than a decade ago.

Speaking with Bloomberg’s Erik Schatzker last week, Taleb said the reason why he has reservations about today’s economy is that it suffers from the “same disease” as before. The meltdown in 2007 was a “crisis of debt,” and if anything, the problem has only worsened.

Indeed, debt is on the rise. By the end of the first quarter, the total amount the world owes climbed to a record $247 trillion, according to the Institute of International Finance (IIF). That’s up almost $150 trillion over the past 15 years.

A lot of this debt, Taleb said, may have moved to different places since the financial crisis—it’s shifted from housing to governments and corporate balance sheets—but the debt “is still there.” Student loan debt in the U.S., for example, stands at about $1.5 trillion today, or nearly $33,000 per borrower. After mortgages, student debt is now the largest form of debt in the U.S.

Just look at the federal government’s balance sheet. Gross debt has more than doubled from pre-recession levels, meaning Washington now owes slightly more than the entire size of the U.S. economy.

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Higher Debt Levels Pose an “Economic Threat”

President Donald Trump said last week that “we’re going to start paying down debt.” But all the signs appear to say otherwise. The Treasury Department estimates that it will issue some $1.338 trillion in debt this year—more than twice the amount as last year. And the Office of Management and Budget (OMB) recently reported that the government is set to run trillion-dollar deficits for the next four years, despite a roaring economy.

Photo: Gage Skidmore | Creative Commons Attribution-Share Alike 3.0 Unported license

According to Taleb, the U.S. government is now in a “debt spiral,” meaning it must borrow to repay its creditors. And with rates on the rise, servicing all this debt will continue to get more and more expensive.

Did you know that the government could soon pay more in interest than on defense? Interest costs are projected to become the third largest category in the federal budget by 2026, according to the Peter G. Peterson Foundation’s analysis of Congressional Budget Office (CBO) data. By 2046, these payments could become the second largest category; and by 2048, the single largest category.

“It is a fact that when your national debt gets to the level ours is, that it constitutes an economic threat to the society,” National Security Adviser John Bolton said last week in Washington, D.C. “And that kind of threat ultimately has a national security consequence for it.”

Spending …read more

Investing vs. Speculating: Why Knowing the Difference Is Key

Investment speculation table
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Take cryptocurrencies, for example. These digital coins, such as bitcoin and ethereum, surged in popularity late last year and are known for having

As the stock market bull potentially nears the end of its run and we head into the last two months of 2018, many investors are making adjustments to their portfolios. Over the course of my travels and in conversations with other industry experts, I’m constantly reminded the importance of: 1) understanding the difference between investing and speculating, and 2) understanding risk tolerance.

These are two primary points for any investor seeking to make sound decisions with their money to understand.

1. Know the Difference in Investing vs. Speculating

All definitions vary slightly, but most are along the same lines. An investment is an asset or item acquired with the goal of generating income or appreciation in the future. Speculation is a financial transaction that has substantial risk of losing all value, but with the expectation of a significant gain.

Notice how the definition for investment doesn’t include the word “risk.” Of course, every investment carries some level of risk; however, the potential of losing the entire principal investment amount is largely what differentiates investing from speculating. Other factors to consider include time horizon, decision criteria and investor attitude.

Examples of well-known and popular investments include the stock market, bonds, U.S. Treasuries and mutual funds. Assets that fall into speculative territory include options, futures, foreign currencies, startup companies and cryptocurrencies.

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Take cryptocurrencies, for example. These digital coins, such as bitcoin and ethereum, surged in popularity late last year and are known for having high volatility, or price swings. Many consider cryptos as speculative assets due to their relatively short existence in the financial world, absence of sound regulation and the many unknowns surrounding trading patterns.

What about the lottery? The Mega Millions made headlines last week for ballooning to the second highest jackpot ever, after failing to find a winner in the 25 drawings since July. Approximately 15.7 million people bought tickets for a one in 303 million chance of selecting the right six numbers, and just one lucky person in South Carolina won the $1.54 billion prize. Is buying a ticket speculating? Or is it perhaps gambling?

I believe it all comes back to the level of risk.

Measuring Risk Through Volatility

Standard deviation, or sigma, is a probability tool that gauges a security’s volatility. Specifically, it measures the typical fluctuation of a security around its mean or average return over a period of time. I often refer to this as an asset’s “DNA of Volatility.”

Standard Deviation For One Year, as of 09/30/18

One Day
Ten Day

S&P 500 Index (S&P)
1%
1%

Gold Bullion
1%
2%

Bitcoin
6%
22%

Ethereum
6%
22%

Take a look at this table comparing an array of assets. Two of the most popular cryptocurrencies, bitcoin and ethereum, both have much higher volatility than the stock market, as measured by the S&P 500. On the other hand, gold bullion is only slightly more volatile than the S&P 500, and has actually outperformed the market since 2000.

At U.S. Global Investors we advocate investing in gold and gold equities due …read more

Take Advantage of Volatility with Active Management

Take Advantage of Volatility with Active Management

October was at it again last week. After Wednesday’s close, the S&P 500 Index, Dow Jones Industrial Average and small-cap Russell 2000 Index had all erased their gains for 2018, while the tech-heavy NASDAQ Composite dipped into correction territory.

I don’t believe there’s any single cause for the selloff. Investors are simply nervous, thanks to rising interest rates and the upcoming midterm elections, among other things.

Meanwhile, gold performed precisely as we would expect it to. The price of the yellow metal jumped above its 100-day moving average, a bullish sign that could mean further moves to the upside if market volatility persists. On Friday, gold was trading at a three-month high of $1,246 an ounce.

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So can we expect additional volatility going forward? In a recent note to investors, Citibank says it estimates that “some more volatility is likely through December” due to the impact of trade disputes on growth, rise in U.S.-Saudi Arabia tensions and Brexit stalemate. Analysts point out, though, that the present slowdown doesn’t necessarily signal the end of the historic bull market. Compared to the start of the previous two bear markets, in 2000 and 2007, only four out of 18 factors are flashing “sell” right now on Citi’s “bear market checklist.” Among those factors are overinflated global equity valuations, a flattening yield curve and high debt levels.

The bull is “tripping, not dying,” Citi says.

But Is It the End of “Buying the Dip”?

The bull market might not be dead, but we could be facing the end of “buying the dip.” According to a report last week by Morgan Stanley, buying the S&P 500 after a week of negative returns was a profitable strategy from 2005 through 2017. That may no longer be the case, as you can see in the chart below. Buying the dip in 2018 has resulted in an average loss of around 5 basis points.

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So what’s changed? I think the most significant difference between now and the past decade or so is that, for the first time since the financial crisis, central banks are finally starting to withdraw liquidity. This means cheap money is no longer as plentiful as it once was, for investors and corporations alike.

Some might disapprove of President Donald Trump’s criticism of Federal Reserve Chairman Jerome Powell for raising rates—Powell “almost looks like he’s happy raising interest rates,” Trump said—but he’s not wrong in expressing concern about the ramifications. I’ve shared with you before that a majority of recessions and bear markets in the past 100 years were preceded by monetary tightening cycles.

And there could be something else roiling markets right now.

Get Ready for $7.4 Trillion in Passive Index Selling

Last month I wrote about what I see as an imminent “passive index meltdown.” Over the past decade, billions of dollars have poured into ETFs and other passive investment products. …read more

6 Reasons Why Texas Trumps All Other U.S. Economies

Texas manufacturing sector continues to expand
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2. Texas is the largest exporting state

Texas is also known as the top exporting state in the nation, responsible for almost 20 percent of total U.S. exports. And they continue to grow at an impressive rate. According to the Dallas Fed, Texas exports rose sharply in July and were up 16 percent year-to-date, or about three times faster than U.S. exports, which increased 5.2 percent for the same period. Much of the growth in the Lone Star State is due to its monster oil and gas industry, which exported more crude than it imported for the first time ever in April, according to an August report by the U.S. Energy Information Administration (EIA).

Texas is the top exporting state
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3. Texans enjoy the fastest income growth in the U.S.

Thanks to a robust business environment, and the fact that it’s one of only four states without a corporate income tax, Texas residents enjoyed the fastest personal income growth this year between the first and second quarter. According to the Bureau of Economic Analysis (BEA), incomes expanded a whopping 6 percent in the June quarter, compared to 4.2 percent for Americans on average. This was the best rate among all 50 states. Earnings increases were led by professional, scientific and technical services.

Texas ranked first in income growth
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4. Texas is a global oil superpower

In case you haven’t heard, Texas is oil country—the number one producer in the U.S., accounting for more than 40 percent of national output—and that’s been a blessing for the state’s economy. Employment in oil and gas has led growth among its major sectors. Since Congress removed the crude oil export ban, oil and gas exports have gone from making up 5.2 percent of state exports to the largest share at 18 percent, or $45 billion over the past 12 months, according to the Dallas Fed. Investment bank HSBC now predicts that Texas will surpass OPEC members Iran and Iraq next year to become the world’s number three oil producer, accounting for over half of U.S. production.

Texas now accounts for over 40 percent of US oil production
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5. Everyone wants to move to Texas

Two years ago I wrote a piece about how

As many of you reading this know, I’m what you would call a Tex-Can. I was born and raised in Canada, but I’ve called Texas home for nearly 30 years. I can’t picture U.S. Global Investors headquartered anywhere else, even after traveling to all parts of the country and, indeed, the world. Texas just “gets it,” which is why I think CNBC recently named the $1.6 trillion economy the best state for business in 2018—the first time, in fact, a state has won four separate times since the network began ranking them 12 years ago.

Below are six reasons why I think Texas trumps all other U.S. economies.

1. Texas is a manufacturing powerhouse

Everything’s bigger in Texas, and that includes manufacturing. Last year, total manufacturing output from the Lone Star State was $226.16 billion, or about 10 percent of total U.S. manufacturing goods, according to the Federal Reserve Bank of Dallas. The industry supports more than 865,000 jobs in Texas, or about 7.1 percent of its workforce. And the average annual compensation for manufacturing was $82,544, compared to $46,642 for all nonfarm jobs, which helps boost the state’s gross domestic product (GDP). Finally, at a time when global manufacturing expansion is slowing, the sector in Texas continues to grow at a healthy pace.

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2. Texas is the largest exporting state

Texas is also known as the top exporting state in the nation, responsible for almost 20 percent of total U.S. exports. And they continue to grow at an impressive rate. According to the Dallas Fed, Texas exports rose sharply in July and were up 16 percent year-to-date, or about three times faster than U.S. exports, which increased 5.2 percent for the same period. Much of the growth in the Lone Star State is due to its monster oil and gas industry, which exported more crude than it imported for the first time ever in April, according to an August report by the U.S. Energy Information Administration (EIA).

click to enlarge

3. Texans enjoy the fastest income growth in the U.S.

Thanks to a robust business environment, and the fact that it’s one of only four states without a corporate income tax, Texas residents enjoyed the fastest personal income growth this year between the first and second quarter. According to the Bureau of Economic Analysis (BEA), incomes expanded a whopping 6 percent in the June quarter, compared to 4.2 percent for Americans on average. This was the best rate among all 50 states. Earnings increases were led by professional, scientific and technical services.

click to enlarge

4. Texas is a global oil superpower

In case you haven’t heard, Texas is oil country—the number one producer in the U.S., accounting for more than 40 percent of national output—and that’s been a blessing for the state’s economy. Employment in oil and gas has led growth among its …read more