The major market indices were lower this week. The Dow Jones Industrial Index lost 2.94 percent. The S&P 500 Stock Index decreased 3.65 percent, while the Nasdaq Composite finished 3.74 percent lower.
Barra Growth underperformed Barra Value as Barra Value finished 3.62 percent lower while Barra Growth fell 3.67 percent. The Russell 2000 closed the week with a loss of 3.27 percent.
The Hang Seng Composite finished higher by 1.59 percent; Taiwan was down 0.25 percent and the Kospi gained 1.05 percent.
The 10-year Treasury bond yield closed at 3.11 percent, down 11 basis points for the week.
All American Equity Fund – GBTFX â€¢ Holmes Growth Fund – ACBGX â€¢ Global MegaTrends Fund – MEGAX
Domestic Equity Market
All 10 sectors of the S&P 500 index declined this week (chart below). The best-performing sector was financials, down 1.5 percent. Other better-performing sectors included health care and telecom services. The three worst-performing sectors were energy, consumer discretion and technology.
Within the financials sector, the best-performing stock was Moody’s Corp, up 4.3 percent. Other top performers in the sector were First Horizon National Corp., Discover Financial Services, Berkshire Hathaway Inc. and Capital One Financial Corp.
The oil & gas refining & marketing group was the top-performing group for the week, up 4 percent. Government data this week showed a drop in gasoline inventories, and the travel group AAA forecast that U.S. auto travel over the July 4 holiday weekend will likely rise 18 percent. Both factors helped lift expectations that demand for gasoline will keep prices up.
The human resources & employment services group rose 2 percent. A major brokerage firm upgraded Robert Half International Inc. to â€œoutperformâ€ and raised its target price on the stock.
The biotechnology group gained 1 percent. Genzyme Corp. entered into an agreement to repurchase $1 billion of its common stock.
The motorcycle manufacturing group was the worst performer, losing 9 percent, led down by its single member, Harley-Davidson Inc. A major brokerage firm reiterated its â€œsellâ€ rating on the stock, saying its research showed that new bike demand appeared to have decelerated in May.
Seven of the 10 worst-performing groups were in the consumer discretion sector (motorcycle manufacturing, specialty stores, photographic products, department stores, home furnishings, education services and hotels). It appears that investors have become more concerned about a slowdown in the pace of economic growth and consumer spending.
The retail drug group underperformed, dropping 8 percent. Walgreen Corp. reported earnings below the consensus estimate, in part due to higher-than-expected expenses.
There may be an opportunity for gain in M&A (merger & acquisition) transactions in 2010. Corporate liquidity is high, thereby providing the means to pursue acquisitions.
Should investors’ expectations for an improving economy not come to fruition on a reasonable time frame, it could be a threat to stock prices.
As governments around the world begin to wind down the monetary and fiscal stimulus programs put in place during the economic crisis, a headwind for stocks will likely be created.
June 24, 2010
Steel Supports Recovery
June 23, 2010
Chart of the Week Chinese Wages
June 22, 2010
An Expert’s View on Yuan Appreciation
U.S. Government Securities Savings Fund – UGSXX â€¢ U.S. Treasury Securities Cash Fund – USTXX
Near-Term Tax Free Fund – NEARX â€¢ Tax Free Fund – USUTX
The Economy and Bond Market
Treasury bonds rallied this week, sending yields lower by about 10 basis points across much of the Treasury yield curve. Weak housing data and growing concerns over the global economic impact of austerity measures were the primary drivers. The Federal Reserve met this week and met expectations by signaling no change in monetary policy.
New homes sales dropped nearly 33 percent in May to 300,000 units, less than a quarter of their level in May 2005 and the lowest level since records began in 1963. Expiration of the homebuyer tax credit apparently pulled demand forward and the market is suffering without that support.
China relaxed the yuan’s peg to the dollar, essentially allowing it to appreciate. While this is effectively a tightening step for China, it is viewed as a better alternative than raising interest rates. The timing was also favorable from a political standpoint, as the G-20 meeting of large economies is being held this weekend in Toronto. Many nations participating in the meeting have urged China to allow appreciation.
Global steel output rose 29 percent in May and now stands 10 percent higher than May 2007, before the global economic crisis.
The University of Michigan Consumer Confidence Index rose to the highest level since January 2008.
May new home sales hit a record low and existing home sales also disappointed, falling 2.2 percent in the month. Housing is not providing any basis for the economic rebound.
Austerity measures are all the rage around the world, including the United Kingdom, Germany and Japan. The measures proposed are often aggressive cost cutting or tax increases that threaten the near-term economic recovery.
Durable goods in May declined 1.1 percent, better than expected but still down sharply.
Inflation is unlikely to be a problem for some time and this gives central bankers and other policymakers around the world room for expansive policies.
The risk of austerity measures going too far and significantly diminishing economic growth is real.
Concerns about a full-blown credit crisis have probably diminished, but still cannot be ruled out.
World Precious Minerals Fund – UNWPX â€¢ Gold and Precious Metals Fund – USERX
For the week, spot gold closed at $1,255.60 per ounce, down $1.20, or 0.10 percent. Gold equities, as measured by the Philadelphia Gold & Silver Index, shed 0.27 percent. The U.S. Trade-Weighted Dollar Index fell 0.46 percent.
After a rocky start for gold this week, due to China’s intention to let its currency appreciate, bullion came close to eclipsing its all-time high by Friday close. Spreads on Greek credit default swaps are now higher than before Europe announced its massive plan to restore credibility to the euro.
Saudi Arabia moved up to become the 16th largest country in terms of gold reserves with 322.9 metric tons. This amount held in Saudi Arabia’s central bank more than doubled previous estimates.
China’s largest gold producer, China National Gold (a private company), will purchase and process gold concentrates under a long-term contract from the Kensington Mine in Alaska. China offered payment for the gold within seven days of delivery versus the traditional three-month delay used by many smelters. This provides an innovative source for China to increase its gold holdings by not going out to the open market to directly acquire gold.
Indian gold demand dipped by more than 50 percent from April to May as strong gold prices due to eurozone problems put some buyers on the sidelines.
Australia and China signed more than $8.8 billion worth of commercial and mining deals. This is a sign that Australia’s proposed mining tax has not deterred China, Australia’s largest export market.
What is bad for the major publicly listed mining companies is an opportunity for the Chinese government to establish more direct ties to the source of the minerals they need versus competing to buy them in the public markets.
Over the last 10 years, gold and gold-mining stocks have been a good investment. For the first five years of this period, the gold-mining equity indexes outperformed the gold price due to expanding profit margins. In the last five years, gold has outperformed the gold-mining indexes as margins were compressed by rising costs from fuel, steel, reagents and labor. With gold prices significantly above the all-in marginal cost of production, we are now likely to see the gold miners outperform bullion.
All but two U.S. states will have budget deficits this year, with the combined shortfall likely exceeding $300 billion. That would far surpass Greece’s expected 2010 budget shortfall of $28 billion. As financial problems persist, gold’s safe haven attributes look more attractive.
A recent Gluskin Sheff report by David Rosenberg, Chief Economist & Strategist, highlights the impact of bear markets over the past 125 years. Looking at the Dow Jones Industrial Average (and adjusting for inflation), the average bear market of 16 years pretty much wipes out gains from the previous bull market. Assuming 2 percent inflation and that the current bear market ends in 2016, Rosenberg says, the Dow could trough at 5,000. At that point, he predicts, gold would likely be $5000 per ounce. The last time gold had a major run (1970 to 1980), the S&P 500 delivered an average annual real return of 0.8 percent for the decade, while the Toronto Gold & Precious Minerals Index, in U.S. dollar terms, compounded at a real return 25.1 percent per year.
The Guatemalan government asked a large Canadian-based mining company to suspend operations temporarily while the government addresses accusations of human rights claims made by an activist group. The company has not complied with the request.
A gold miner in Mexico facing labor problems at one of its mines fired all 400 miners for going on an illegal strike. Management may find it difficult to re-establish good relations with the community.
Australia’s new prime minister, Julia Gillard, has not moved away from her predecessor’s plans to introduce a super profits mining tax. Gillard did, however, emphasize that she wants to make sure Australians get a fair share of the mineral wealth.
Global Resources Fund – PSPFX â€¢ Global MegaTrends Fund – MEGAX
Energy and Natural Resources Market
Global crude steel output jumped 30 percent in the first five months of the year to 586 million metric tons, the World Steel Association said.
According to the World Gold Council, the Saudi Arabian central bank’s gold holdings climbed to 323 metric tons, more than double the 143 metric tons reported in March.
China increased coal imports by 17 percent year over year in May because of a rebound in the economy. Coal purchases rose to 11 million metric tons in May, according to data released by the General Administration of Customs. China paid an average $109 a ton for delivered coal in May, about 11 percent higher than in the previous month.
Platts reports that hot-rolled coil steel prices in the U.S. declined by $12.50 per ton to $645 per ton, down 6.5 percent over the last month.
The Baltic Dry Index, a key indicator of future international trade activity and the U.S. economy, closed at 2,502 on Thursday, down 7 percent from the prior week and more than 40 percent since the end of May.
Spot hard coking coal prices in Australia fell $2.00 per metric ton to $203, according to Platts. Prices are down 6 percent over the last month and down 14 percent over the last two months.
Petrobras announced it will boost its five-year capital spending plans for oil and gas projects by 14 percent to $224 billion.
Physical ETFs may become increasingly important in to base metals, with an aluminum ETF likely to come to market this year.
According to a draft government document obtained by Chinese media, China aims to shut down as many as 7,000 small coal miners by 2015.
China’s natural gas consumption is expected to account for 8 percent of total energy consumption in the country during the 2010-15 period, compared with the current 4 percent, according to the National Energy Bureau.
The tropical wave over the western Caribbean Sea could develop into a tropical depression over the next couple of days as it moves toward the Gulf of Mexico, the U.S. National Hurricane Center and other weather forecasters predicted.
India’s food price index rose 17 percent in the year to June 12, while the fuel price index climbed 13 percent, according to government data.
China Region Opportunity Fund – USCOX â€¢ Eastern European Fund – EUROX
Global Emerging Markets Fund – GEMFX
China unpegged its currency from the U.S. dollar one week ahead of the June 26-27 G-20 meeting in Toronto in order to reintroduce more flexibility to the exchange rate after a two-year moratorium. The yuan strengthened by more than 0.5 percent against the U.S. dollar this week.
Moody’s Investors Service raised the outlook on Indonesia’s local and foreign currency sovereign ratings to â€œpositiveâ€ from â€œstable,â€ saying it expects the country to post sustained strong growth and further improvements in financial and debt position.
Taiwan’s unemployment rate declined to a 17-month low of 5.2 percent in May, better than market expectations and lower than April’s 5.4 percent. Technology manufacturers grew more confident of the economic outlook and increased hiring.
South Korea’s consumer confidence rose to 112 in June from 111 in May, a second month of advance, reflecting the strengthening economy and improving job market.
Singapore’s industrial production unexpectedly accelerated to 58.6 percent in terms of year-over-year growth from April’s 49.7 percent surge, driven by the electronics industry.
China canceled export tax rebates for a long list of products of polluting and high energy-consuming industries, including steel, nonferrous metals and chemicals.
Taiwan’s central bank unexpectedly raised the benchmark interest rate by 12.5 basis points to 1.375 percent, after keeping it at the record low 1.25 percent for 15 months, in a pre-emptive move to bring the rate toward a neutral level.
Philippines’ budget deficit widened in May to 30.5 billion pesos from 11.38 billion pesos in May 2009. Cumulative government expenditure in the first five months increased 14.3 percent year over year while revenue rose only 9.6 percent.
Singapore’s consumer prices increased 3.2 percent year over year in May, more than market expected, as a result of higher prices for food, housing, and automobiles.
Indonesia remains one of the major beneficiaries of an appreciating Chinese currency, thanks to the commodity-heavy nature of its exports to China. Coal and palm oil are key categories. During the three years from mid-2005 to mid-2008, when the yuan was unpegged from the U.S. dollar and saw appreciation, Indonesian equities more than doubled in U.S. dollar terms, making them the second-best performer in Asia after Chinese equities. In addition, the government’s improving fiscal status highlights a prudent Indonesia where public sector debt declined to 31 percent of GDP in 2009 from 102 percent in 1999, a confidence booster in a world of apprehensions over sovereign indebtedness.
The lagging impact of weakening European demand and a potentially rising yuan on Chinese exports may combine with a considerable policy-induced slowdown in fixed asset investment to eclipse growth in private consumption in China in the second half of this year. Macroeconomic headwinds could continue to challenge investor sentiment towards China in the near term.
Leaders and Laggards
The tables show the performance of major equity and commodity market benchmarks of our family of funds.
Weekly Performance Index Close Weekly
Change(%) Oil Futures 79.13 +1.95 +2.53% Hang Seng Composite Index 2,888.84 +45.16 +1.59% Korean KOSPI Index 1,729.84 +17.89 +1.05% S&P/TSX Canadian Gold Index 387.73 +3.95 +1.03% Gold Futures 1,256.30 -2.00 -0.16% XAU 185.12 -0.50 -0.27% Natural Gas Futures 4.86 -0.14 -2.70% S&P Basic Materials 183.16 -5.15 -2.73% DJIA 10,143.81 -306.83 -2.94% Russell 2000 645.11 -21.81 -3.27% 10-Yr Treasury Bond 3.11 -0.11 -3.51% S&P BARRA Value 512.93 -19.27 -3.62% S&P 500 1,076.76 -40.75 -3.65% S&P BARRA Growth 555.89 -21.19 -3.67% Nasdaq 2,223.48 -86.32 -3.74% S&P Energy 392.50 -24.59 -5.90%
Monthly Performance Index Close Monthly
Change(%) Natural Gas Futures 4.86 +0.71 +17.02% Oil Futures 79.13 +7.62 +10.66% Korean KOSPI Index 1,729.84 +147.72 +9.34% XAU 185.12 +14.38 +8.42% S&P/TSX Canadian Gold Index 387.73 +25.47 +7.03% Gold Futures 1,256.30 +41.00 +3.37% DJIA 10,143.81 +169.36 +1.70% S&P BARRA Growth 555.89 +8.47 +1.55% Nasdaq 2,223.48 +27.60 +1.26% S&P Energy 392.50 +4.40 +1.13% S&P 500 1,076.76 +8.81 +0.82% S&P Basic Materials 183.16 +1.42 +0.78% Russell 2000 645.11 +2.49 +0.39% S&P BARRA Value 512.93 +0.60 +0.12% 10-Yr Treasury Bond 3.11 -0.08 -2.57% Hang Seng Composite Index 2,888.84 -332.01 -14.83%
Quarterly Performance Index Close Quarterly
Change(%) S&P/TSX Canadian Gold Index 387.73 +82.16 +26.89% Natural Gas Futures 4.86 +0.88 +22.13% XAU 185.12 +26.81 +16.94% Gold Futures 1,256.30 +161.00 +14.70% Korean KOSPI Index 1,729.84 +41.45 +2.46% Oil Futures 79.13 -1.40 -1.74% Hang Seng Composite Index 2,888.84 -64.16 -2.17% Russell 2000 645.11 -33.99 -5.01% DJIA 10,143.81 -697.40 -6.43% S&P Energy 392.50 -27.95 -6.65% S&P BARRA Growth 555.89 -42.85 -7.16% Nasdaq 2,223.48 -173.93 -7.25% S&P 500 1,076.76 -88.97 -7.63% S&P BARRA Value 512.93 -45.21 -8.10% S&P Basic Materials 183.16 -18.70 -9.26% 10-Yr Treasury Bond 3.11 -0.77 -19.90%
Please consider carefully a fund’s investment objectives, risks, charges and expenses. For this and other important information, obtain a fund prospectus by visiting Home – U.S. Global Investors or by calling 1-800-US-FUNDS (1-800-873-8637). Read it carefully before investing. Distributed by U.S. Global Brokerage, Inc.
An investment in a money market fund is neither insured nor guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although the fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the fund.
All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor.
Foreign and emerging market investing involves special risks such as currency fluctuation and less public disclosure, as well as economic and political risk. By investing in a specific geographic region, a regional fund’s returns and share price may be more volatile than those of a less concentrated portfolio.
The Eastern European Fund invests more than 25 percent of its investments in companies principally engaged in the oil & gas or banking industries. The risk of concentrating investments in this group of industries will make the fund more susceptible to risk in these industries than funds which do not concentrate their investments in an industry and may make the fund’s performance more volatile.
Because the Global Resources Fund concentrates its investments in a specific industry, the fund may be subject to greater risks and fluctuations than a portfolio representing a broader range of industries.
Gold, precious metals, and precious minerals funds may be susceptible to adverse economic, political or regulatory developments due to concentrating in a single theme. The prices of gold, precious metals, and precious minerals are subject to substantial price fluctuations over short periods of time and may be affected by unpredicted international monetary and political policies. We suggest investing no more than 5 percent to 10 percent of your portfolio in these sectors. Investing in real estate securities involves risks including the potential loss of principal resulting from changes in property value, interest rates, taxes and changes in regulatory requirements.
Tax-exempt income is federal income tax free. A portion of this income may be subject to state and local income taxes, and if applicable, may subject certain investors to the Alternative Minimum Tax as well. Each tax free fund may invest up to 20 percent of its assets in securities that pay taxable interest. Income or fund distributions attributable to capital gains are usually subject to both state and federal income taxes. Bond funds are subject to interest-rate risk; their value declines as interest rates rise. The tax free funds may be exposed to risks related to a concentration of investments in a particular state or geographic area. These investments present risks resulting from changes in economic conditions of the region or issuer.
Past performance does not guarantee future results.
These market comments were compiled using Bloomberg and Reuters financial news.
Holdings as a percentage of net assets as of 3/31/10:
Moody’s Corp: 0.00%
First Horizon National Corp: 0.00%
Discover Financial Services: 0.00%
Berkshire Hathaway Inc: Global MegaTrends Fund 2.62%
Capital One Financial Corp: 0.00%
Robert Half International Inc: 0.00%
Genzyme Corp: 0.00%
Harley-Davidson Inc: 0.00%
Walgreen Corp: 0.00%
*The above-mentioned indices are not total returns. These returns reflect simple appreciation only and do not reflect dividend reinvestment.
The Dow Jones Industrial Average is a price-weighted average of 30 blue chip stocks that are generally leaders in their industry.
The S&P 500 Stock Index is a widely recognized capitalization-weighted index of 500 common stock prices in U.S. companies.
The Nasdaq Composite Index is a capitalization-weighted index of all Nasdaq National Market and SmallCap stocks.
The S&P BARRA Growth Index is a capitalization-weighted index of all stocks in the S&P 500 that have high price-to-book ratios.
The S&P BARRA Value Index is a capitalization-weighted index of all stocks in the S&P 500 that have low price-to-book ratios.
The Russell 2000 Index® is a U.S. equity index measuring the performance of the 2,000 smallest companies in the Russell 3000®, a widely recognized small-cap index.
The Hang Seng Composite Index is a market capitalization-weighted index that comprises the top 200 companies listed on Stock Exchange of Hong Kong, based on average market cap for the 12 months.
The Taiwan Stock Exchange Index is a capitalization-weighted index of all listed common shares traded on the Taiwan Stock Exchange.
The Korea Stock Price Index is a capitalization-weighted index of all common shares and preferred shares on the Korean Stock Exchanges.
The Philadelphia Stock Exchange Gold and Silver Index (XAU) is a capitalization-weighted index that includes the leading companies involved in the mining of gold and silver.
The U.S. Trade Weighted Dollar Index provides a general indication of the international value of the U.S. dollar.
The MSCI Russia Index is a free-float weighted equity index developed in 1994 to track major equities traded in the Russian market.
The S&P/TSX Canadian Gold Capped Sector Index is a modified capitalization-weighted index, whose equity weights are capped 25 percent and index constituents are derived from a subset stock pool of S&P/TSX Composite Index stocks.
The S&P 500 Energy Index is a capitalization-weighted index that tracks the companies in the energy sector as a subset of the S&P 500.
The S&P 500 Materials Index is a capitalization-weighted index that tracks the companies in the material sector as a subset of the S&P 500.
The S&P 500 Financials Index is a capitalization-weighted index. The index was developed with a base level of 10 for the 1941-43 base period.
The S&P 500 Industrials Index is a Materials Index is a capitalization-weighted index that tracks the companies in the industrial sector as a subset of the S&P 500.
The S&P 500 Consumer Discretionary Index is a capitalization-weighted index that tracks the companies in the consumer discretionary sector as a subset of the S&P 500.
The S&P 500 Information Technology Index is a capitalization-weighted index that tracks the companies in the information technology sector as a subset of the S&P 500.
The S&P 500 Consumer Staples Index is a Materials Index is a capitalization-weighted index that tracks the companies in the consumer staples sector as a subset of the S&P 500.
The S&P 500 Utilities Index is a capitalization-weighted index that tracks the companies in the utilities sector as a subset of the S&P 500.
The S&P 500 Healthcare Index is a capitalization-weighted index that tracks the companies in the healthcare sector as a subset of the S&P 500.
The S&P 500 Telecom Index is a Materials Index is a capitalization-weighted index that tracks the companies in the telecom sector as a subset of the S&P 500.
The University of Michigan Confidence Index is a survey of consumer confidence conducted by the University of Michigan. The report, released on the tenth of each month, gives a snapshot of whether or not consumers are willing to spend money.
The Toronto Stock Exchange Gold and Precious Minerals Index is a capitalization-weighted index designed to measure the performance of the gold and precious minerals sector of the TSX 300 Index.
The Baltic Dry Freight Index is an economic indicator that portrays an assessed price of moving major raw materials by sea as compiled by the London-based Baltic Exchange.