Oil Price Collapse: The $330 Billion Global Tax Break

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The $330 Billion Global Tax Break

December 19, 2014

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

Warren Buffett: The ultimate contrarian investor.

In an October 2008 op-ed in the New York Times, Warren Buffett famously advised: “Be fearful when others are greedy, and be greedy when others are fearful.”

Whereas most investors during that time of financial panic were dumping their freefalling U.S. equities, Buffett was snatching them up at such great volume that he imagined his personal, non-Berkshire Hathaway portfolio would soon be composed only of domestic stocks.

“I haven’t the faintest idea as to whether stocks will be higher or lower a month—or a year—from now,” he continued. “What is likely, however, is that the market will move higher, perhaps substantially so, well before either sentiment or the economy turns up.”

The same is true for oil prices. I can’t say when oil will begin to recover or by how much. What I can say is this: For far too many investors, by the time they gain back the confidence to put money into oil stocks again, the rally might have already taken off, making it challenging to capture the full benefit of the upswing.

In the 1860s Central Pacific Railroad Employed Over 12000 Chinese Laborers

Think of it this way. Every Black Friday, merchandise is discounted to such an extent that thousands of bargain shoppers are willing to camp overnight in parking lots to be the first inside. When the doors open, people literally get pushed, shoved, elbowed and trampled on.

But too often, the stock market works in a curiously opposite way. When certain stocks drop in price, investors scramble for the exit instead of picking up the bargains.

Oil Extremely Oversold

Oil tycoon T. Boone Pickens recently told Mad Money’s Jim Cramer that oil would return to $100 within 12 to 18 months. Again, there’s no guarantee that this will happen—and keep in mind that it’s in Pickens’s self-interest that oil reach these figures again—but if it does, the most opportune time to participate in the oil trade could be now when stocks are at a discount.

Pickens’ prediction aside, there are sound reasons to believe that oil prices will be normalizing sooner rather than later.

For one, oil prices are currently below many countries’ breakeven prices. This could finally encourage the Organization of the Petroleum Exporting Countries (OPEC) to cut production, so long as Saudi Arabia got assurances from fellow members that they would comply with the cuts. Where they are right now, prices simply aren’t sustainable. According to Business Insider, oil rigs in the Permian Basin have fallen by nine; those in Williston by seven; and those in Marcellus by one.

Brian Hicks, portfolio manager of our Global Resources Fund (PSPFX), believes that the bottom for oil prices might have already been reached.

“Aggressive capex cuts in the oil industry right now will lead to lower supply in 2015 and 2016, increasing demand and pushing up prices,” Brian says. “Plus, there might be a positive seasonal trading session over the next few weeks, with a possible laggard rebound in January.”

Although past performance is no guarantee of future results, the chart below, which takes into account 30, 15 and five years’ worth of seasonal data for oil prices, illustrates Brian’s point. In the 30-year range, a steady decline in prices began in October and bottomed in February. This was followed by a substantial rally that carried us through the first and second quarters of the year. It’s possible the same will happen again early next year.

West Texas Crude Oil Historical Pattern
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“The theme going into 2015 is mean reversion,” Brian said in a Frank Talk a couple of weeks ago. “Oil prices are below where they should be, and hopefully they’ll start gravitating back to the equilibrium price of between $80 and $85 a barrel.”

Bad News Is Good News

While we wait for oil to revert back to its mean, however, the world can enjoy and benefit from inexpensive gas. Call it the “oil peace dividend.” Here in the U.S., the current average for a gallon of gas is $2.45. Just one year ago, it was $3.21 per gallon, $0.76 higher. Over the course of a year, those extra cents add up.

But the U.S. isn’t the only country that benefits from affordable fuel.

According to an article by Jon Markman titled “The Saudi Stimulus,” the global economy is looking to save hundreds of billions of dollars on an annual basis:

According to EIA [U.S. Energy Information Administration] data, consumption of crude oil during the latest 12 months was 6.9 billion barrels. So the price drop from $107/barrel at the June 2014 high to $59 today represents a total presumptive savings of $332 billion per year.

In a time when China, the European Union and other major markets are trying to jumpstart their economies, a $330 billion tax break can only come as good news. It should help in stimulating spending and driving global economic growth.

The Weakening Russian Bear

It’s impossible not to discuss falling oil prices without also touching on Russia, half of whose budget depends on $100-per-barrel oil exports. In the past month alone, the federation’s currency has plunged more than 30 percent to 60 rubles to the dollar as Brent oil has slipped nearly 25 percent.

Russian Currency's Tumble Tied to Falling Brent Oil Prices
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President Vladimir Putin couldn’t have chosen a worse time to annex the Crimean peninsula because now the region must be subsidized with money Russia doesn’t really have at the moment. (That’s not to say, of course, that there was ever a good time to invade Ukraine, or that Putin could have predicted the dramatic decline in Brent oil prices.) But even before the ruble began to unravel, stocks in Russia’s MICEX Index had already taken a hit in July and fallen out of lockstep with other emerging markets.

Russian Stocks Decoupling from Emerging Markets
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There’s no lack of commentators making comparisons between the Russian Federation’s current tailspin and the country’s 1998 debt crisis. But a more apt comparison might be the lead-up to the collapse of the Soviet Union in 1991, given the many uncanny parallels between then and now involving oil.

Yegor Gaidar, acting prime minister of Russia between 1991 and 1994, wrote in 2007:

The timeline of the collapse of the Soviet Union can be traced to September 13, 1985… The Saudis stopped protecting oil prices, and Saudi Arabia quickly regained its share in the world market. During the next six months, oil production in Saudi Arabia increased fourfold, while oil prices collapsed by approximately the same amount in real terms.

As a result, the Soviet Union lost approximately $20 billion per year, money without which the country simply could not survive.

Today, Russia is similarly hemorrhaging capital as a result of international sanctions and crashing oil prices, prompted by both the American shale oil boom and OPEC’s inaction in stabilizing the commodity at last month’s meeting.

It’s unclear for how long Russia’s government can support its oil-dependent budget. During his press conference on Thursday, President Putin conceded that spending cuts were unavoidable, but that “under the most unfavorable external economic scenario, this situation may go on for about two years.”

Some readers might find that prognosis a little too optimistic. It could be that Russia is in for a much lengthier period of damage control.

USGI’s Emerging Europe Fund Resilient to Russia’s Woes

It states in our prospectus that “government policy is a precursor to change.” As such, we believe Russia poses too great of a geopolitical risk for our investors. Because of nimble active management, ourEmerging Europe Fund (EUROX) now has minimal exposure to Russia, thereby avoiding losses as significant as the Market Vectors Russia ETF (RSX).

Historic Cost Trends in Gold Production
click to enlarge

MSCI Emerging Markets Europe 10/40 Index Country Weights

This decision has also enabled the fund to outperform its benchmark, the MSCI Emerging Markets Europe 10/40 Index, which still maintained a 46-percent weighting in Russia as of the end of November. The index has consequently fallen more than 30 percent year-to-date, compared to EUROX’s 22.5 percent.

Since trimming nearly all of our Russian holdings, Turkey has replaced the beleaguered federation as our largest weighting in EUROX. The Borsa Istanbul 100 Index is currently up 16 percent year-to-date.

As anyone who watches the news closely knows, the situation in Russia is evolving rapidly day-to-day. We will continue to monitor events that could trigger opportunities in the region. In the meantime, check out EUROX’s current regional breakdown.

I would like to conclude by wishing all of our loyal shareholders as well as Investor Alert and Frank Talk readers a Merry Christmas, Happy Hanukkah and Season’s Greetings!


Total Annualized Returns as of 09/30/2014

One-Year Five-Year Ten-Year Gross Expense Ratio Expense Ratio After Waivers
Emerging Europe Fund -14.44% -1.61% 3.21% 2.13% n/a
Market Vectors Russia ETF (RSX) -18.53 -2.23 n/a 0.71% 0.63%
MSCI EM Europe 10/40 Index -13.19 1.04% 7.01% n/a n/a

Expense ratios as stated in the most recent prospectus. Performance data quoted above is historical. Past performance is no guarantee of future results. Results reflect the reinvestment of dividends and other earnings. For a portion of periods, the fund had expense limitations, without which returns would have been lower. Current performance may be higher or lower than the performance data quoted. The principal value and investment return of an investment will fluctuate so that your shares, when redeemed, may be worth more or less than their original cost. Performance does not include the effect of any direct fees described in the fund’s prospectus (e.g., short-term trading fees of 0.05%) which, if applicable, would lower your total returns. Performance quoted for periods of one year or less is cumulative and not annualized. Obtain performance data current to the most recent month-end at www.usfunds.com or 1-800-US-FUNDS.

EUROX vs. Market Vectors Russia ETF (RSX)

Investment Objective: The Emerging Europe Fund is an actively managed fund that takes a non-diversified approach to the Eastern European market. The fund invests in companies located in the emerging markets of Eastern Europe.

The Market Vectors Russia ETF seeks to replicate as closely as possible, before fees and expenses, the price and yield performance of the Market Vectors Russia Index. The Index includes companies that are incorporated in Russia or that generate at least 50% of their revenues (or, where applicable, have at least 50% of their assets) in Russia.

Liquidity: The Emerging Europe Fund can be purchased or sold at a net asset value (NAV) determined at the end of each trading day.

RSX issues and redeems shares at NAV only in a large specified number of shares, each called a “Creation Unit,” or multiples thereof. A Creation Unit consists of 50,000 shares. Individual shares of RSX may only be purchased and sold in secondary market transactions through brokers. Shares of RSX are listed on NYSE Arca Inc. (“NYSE Arca”) and because shares trade at market prices rather than NAV, shares of RSX may trade at a price greater than or less than NAV.

Safety/Fluctuations of principal/return: Loss of money is a risk of investing in the Emerging Europe Fund, as well as the Market Vectors Russia ETF. Shares of both of these securities are subject to sudden fluctuations in value, and when sold, may be worth more or less than their original cost.

Tax features: The Emerging Europe Fund may make distributions that may be taxed as ordinary income or capital gains. Under current federal law, long-term capital gains for individual investors in the fund are taxed at a maximum rate of 15%.

RSX’s distributions are taxable and will generally be taxed as ordinary income or capital gains.

Short-Term, Tax Free, NEARX, Near-Term Tax Free Fund

Index Summary

  • Major market indices finished higher this week.  The Dow Jones Industrial Average rose 3.03 percent. The S&P 500 Stock Index gained 3.41 percent, while the Nasdaq Composite advanced 2.40 percent. The Russell 2000 small capitalization index rose 3.78 percent this week.
  • The Hang Seng Composite fell 0.90 percent; Taiwan dropped 0.31 percent and the KOSPI rose 0.43 percent.
  • The 10-year Treasury bond yield rose 8 basis points to 2.16 percent.
All American Equity Fund – GBTFX • Holmes Macro Trends Fund – MEGAX

Domestic Equity Market

The S&P 500 rocketed higher this week, rising 3.41 percent and moving back near 52-week highs. The market reacted positively to the Federal Reserve’s announcement on Wednesday, which indicated a path to normalize interest rates while simultaneously promising to be “patient.”

S&P 500 Economic Sectors
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  • The energy sector was the top sector this week, returning 9.74 percent and bouncing back from oversold conditions after a very difficult few weeks. Including this week’s rally, the energy sector is still down nearly 13 percent over the past three months and many stocks are down much more than that.  Large-cap companies such as Denbury Resources, Noble Corp and Helmerich & Payne saw the best performance for the week, up 30 percent, 28.31 percent and 19.08 percent, respectively.
  • The materials sector also outperformed the broad market, rising 5 percent. This group was led by LyondellBasel, up 16.13 percent. Similar to energy, the materials sector was one of the worst performers over the past few weeks with Lyondell being one of the worst performing major market-cap stocks, but this week the sector saw positive moves in sympathy with the energy trade.
  • The best performing company this week was Nabors Industries, rising 36.30 percent. After being in a steady decline, and falling more than 66 percent over the last five months, we are seeing a strong rally across the board in stocks most affected by the collapse of oil as well as the strong dollar.


  • The consumer discretionary sector was the worst performer this week; however it is still up 1.68 percent.  Mattel, Starbucks and Amazon are among the worst performers, down 5.06 percent, 4.58 percent and 2.41 percent, respectively. This sector has performed well during the fall of oil, so as energy stocks recover it is natural for discretionary spending companies to fall. Their potential for increased revenue comes from more readily available savings for the average family.
  • Another area of weakness was in consumer staples, yet the sector also came out positive at 2.13 percent. This sector was pulled down most by Walgreen’s and Philip Morris, down 1.70 percent and 1.62 percent, respectively.
  • The worst performing company this week was Mattel, which fell 5.06 percent. The company had been cut recently by some analysts, citing shrinkage of the domestic toy industry from positive 4 percent to down 2 percent.


  • Energy stocks appeared oversold but finally bounced this week, which could be the start of a bigger move into year end.  Historically however, the industries that are down the most in the last half of a year have rallied in the first six weeks of the new year. This could be beneficial news for energy and materials.
  • Even with a rally in energy, consumer discretionary and consumer staples sectors stand to benefit from falling gasoline prices in the weeks and months ahead.
  • Car sales are expected to be very high for the last weeks of the year and analysts are estimating 2015 to be a top performing year. With that, we see potential strength in all of the suppliers and beneficiaries of this sector.


  • The rally in U.S. energy producers may be short lived as OPEC countries seem to be acting individually rather than as a collective cartel, making any predictions of future actions more difficult. This will be positive, however, for the inverse beneficiary companies in sectors such as airlines and consumer discretion.
  • The European Central Bank (ECB) still has not shown its cards when it comes to plans to revive the European economy. If the ECB plays a weak hand, Europe could end up in recession again.
  • As conflict in Ukraine is on the rise again, Russia is feeling more and more pressure from a potential increase in sanctions. No one knows what Mr. Putin will do next and he has been unpredictable in the past.
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U.S. Government Securities Ultra-Short Bond Fund – UGSDX  •  Near-Term Tax Free Fund – NEARX

The Economy and Bond Market

U.S. Treasury bonds sold off this week, sending short- and intermediate-term yields higher. The Federal Reserve is beginning its transition to potentially rising interest rates in 2015 and took the first steps in that direction by changing the wording in their press release. The Fed is promising to be “patient.” Two-year treasury yields are back near 52-week highs.

click to enlarge


  • Consumer prices fell 0.3 percent in November and rose 1.3 percent on a year-over-year basis. These numbers could argue for the Fed to stay on the current course and not change policy.
  • Industrial production rose 1.3 percent in November and capacity utilization hit the highest level in more than six years.
  • The Leading Indicators Index rose 0.6 percent in November, signaling solid economic prospects in the coming months.


  • The HSBC Markit Flash China manufacturing index fell to a seven-month low, indicating contraction in the manufacturing sector.
  • Housing starts fell 1.6 percent in November and home builder confidence declined this month.
  • The Swiss National Bank moved to negative interest rates as currency volatility and money flows are impacting the local economy.


  • In recent news, the ECB has chosen not to act but has left the door wide open to full-blown quantitative easing (QE) in the first quarter of 2015.
  • Short-term bond yields have risen but with many headwinds to raising interest rates. The Fed may not be able to follow through on the threat of interest rate increases in 2015 which presents an opportunity. This is a very similar scenario that played out a year ago.
  • Municipal bonds continue to look like an attractive alternative in the broad fixed-income universe.


  • Greece is generating negative headlines once again and while it appears to be an isolated political event, it does reinforce the idea of the potentially fragile nature of the euro currency.
  • Oil prices appear to be extremely oversold. Even a bounce in oil could change the mood in the market, with bonds selling off in reaction.
  • The geopolitical situation remains unusually fluid and could take a negative turn.

Need a No Drama Fund? NEARX Near-Term Tax Free Fund

Gold Market

For the week, spot gold closed at $1,196.35 down $26.15 per ounce, or 2.14 percent. Gold stocks, as measured by the NYSE Arca Gold Miners Index, lost 0.41 percent. The U.S. Trade-Weighted Dollar Index jumped 1.40 percent for the week.

Date Event Survey Actual Prior
Dec 16 Germany ZEW Survey Expectations 20 34.9 11.5
Dec 16 U.S. Housing Starts 1040K 1028K 1009K
Dec 17 Eurozone Core CPI YoY 0.7% 0.7% 0.7%
Dec 17 U.S. CPI YoY 1.4% 1.3% 1.7%
Dec 18 U.S. Initial Jobless Claims 295K 289K 294K
Dec 23 Durable Goods Orders 3.2% 0.4%
Dec 23 GDP Annualized QoQ 4.3% 3.9%
Dec 23 New Home Sales 460K 458K
Dec 24 Initial Jobless Claims 290K 289K


  • Gold traders were bullish for the fourth-consecutive week. The increased optimism related to gold prices stems from the recent turmoil in global markets as well as the continued dovish stance by the Federal Reserve.
  • The Swiss National Bank introduced a negative interest rate on deposits this week. The move, aimed at relieving upward pressure on the franc, should make gold relatively more attractive than franc-denominated assets.
  • Gold exports out of Switzerland reached the highest level this year. Furthermore, in order to meet rising demand from Asia, Swiss refineries are working at full capacity.


  • President Barack Obama indefinitely withdrew more than 52,000 square miles of waters off Alaska’s coastline in order to protect the wildlife in the area. However, miners should get some leeway when it comes to the new law if the Republican-backed proposal bans the Endangered Species Act from applying to the sage grouse for one year.
  • Barrick Gold Corp. is suspending its Lumwana operations in Zambia following a newly established increase in the mining royalty rate. The rate is set to increase from 6 percent to 20 percent for all open-pit mines.


  • With diamond prices on the rise due to short global supply, retailers are looking for opportunities to invest in, or secure supplying deals directly from, individual mines. This would allow them to avoid the intermediate processes all together. Chow Tai Fook, the world’s largest listed jeweler, said it is specifically looking at Canadian projects, providing a great opportunity for many mining companies to make a deal.

Historic Cost Trends in Gold Production
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  • Moving into 2015, many benefits are expected to be had by mining companies given the current environment. Specifically, declining energy prices and depreciating operating currencies could lead to lower costs and expanding margins. The chart above illustrates that costs seem to be rolling over now. Additionally, more mining companies could close their cash-negative assets, focusing attention on productive assets instead. Consolidation remains an opportunity for the industry as well, especially given the recent correction in gold prices.
  • Australia & New Zealand Banking Group Ltd. expects gold prices to recover next year due to increasing demand from China and India. The bank forecasts a gold price of $1,280 by the end of 2015.


  • Contrary to other positive forecasts, Oversea-Chinese Banking Corporation (OCBC) is predicting a continued slide in gold prices down to $1,000. This is because of higher interest rates alongside tamed inflation due to falling oil prices.
  • India’s government is taking a wait-and-see approach before making any official policy decisions to stem rapidly growing gold imports. Gold imports have risen six times, substantially weakening the country’s trade account.
  • The recent damage done to the Russian economy and the ruble are leading some to speculate that the government will begin selling gold. The desperate move could put downward pressure on bullion prices.

Short-Term, Tax Free, NEARX, Near-Term Tax Free Fund

Energy and Natural Resources Market

Middle Eat and NOrth Africa (MENA) Region Brent Breakecven Prices Point to Pain at Current Prices
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  • The long awaited bounce in energy stocks finally arrived this week. Although crude prices closed down for the week, energy stocks saw a significant bounce. The S&P Supercomposite Oil & Gas Drilling Index and the S&P/TSX Capped Energy Index closed up 21.68 and 17.18 percent, respectively.
  • High-dividend-yielding stocks, which have tumbled significantly of late, rallied this week. Concern over these companies’ cuts to dividend payments appears to be over or at least overly priced into the oversold stocks’ prices.
  • Tanker stocks rallied this week alongside the energy stocks. The Bloomberg Tanker Index closed up 11.91 percent this week.


  • Dry ships stocks fell this week as money flowed back into more highly oil leveraged stocks. The Bloomberg Dry Ships Index fell 2.42 percent this week.
  • Gold mining stocks closed down slightly negative this week as gold prices struggled to gain momentum and deflationary fears remain intact. The NYSE Arca Gold Miners Index fell 0.41 percent this week.
  • Coal stocks were a relative underperformer this week, failing to fully rally with the rest of the energy space. Most of the concerns that have depressed coal prices remain in place and are unrelated to the recent volatility in oil prices.


  • Exxon Mobil reported that it successfully drilled its second shale oil and gas well this year in the Vaca Muerta non-conventional deposit in Argentina. The project is producing 448 barrels of oil and 1 million cubic feet of gas a day.
  • Peru approved an environmental study for Southern Copper’s (SCCO) $1.2 billion expansion of its Toquepala mine. In August, SCCO also received the environmental permit for its $1.4 billion proposed copper mine Tia Maria with start-up expected in 2017.  The company is now waiting to receive authorization to begin construction.
  • U.S. Congress has paved the way for a long delayed $6 billion copper mine in Arizona by approving a bill which allows Rio Tinto and BHP Billiton to swap land with the government. The bill will now be sent to President Barack Obama to sign it into law. The Resolution copper mine (55 percent owned by Rio Tinto, 45 percent by BHP Billiton) could produce more than 1 billion pounds of copper per year at its peak, making it the largest copper producer in North America and one of the biggest in the world.


  • The lack of action out of the European Central Bank leaves room for concern as economic sentiment remains relatively weak to the rest of the developed world. If the eurozone requires more aggressive monetary stimulus to spur growth and none is offered, one of the many effects will likely be a decline in demand for commodities.
  • The instability and volatility surrounding Russia is becoming an even larger concern for global investors. Any contagion effect caused by the ruble’s decline could prove disastrous for the global economic recovery and therefore commodities.


China Region Fund – USCOX  •  Emerging Europe Fund – EUROX
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Emerging Markets



  • The political uncertainty surrounding Greece, although still in play, was less harmful toward the market this week. Additionally, the country’s unemployment rate declined to 25.5 percent, its lowest level since 2012.  After significant losses the prior week due to Prime Minister Samaras calling for a snap election, the Athens Stock Exchange General Index was able to gain back 4.96 percent this week.
  • The recent rally in Chinese equities cannot be understated. Over the past six months, China’s market capitalization has surpassed the other BRIC nations’ (Brazil, Russia and India) market capitalizations combined. This week the Shanghai Stock Exchange Composite Index rose for its sixth-straight week, closing up 5.80 percent and reaching a fresh four-year high.

China's Market Value vs. Other BRIC Countries
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  • Colombian equities as well as the country’s currency bounced sharply this week. A large part of the move can be attributed to the announcement that Colombia’s GDP grew at the fastest pace among other major Latin American countries in the third quarter. Furthermore, the Colombian peso, which has experienced a significant devaluation in recent months, appreciated 4.63 percent against the dollar this week. The Indice General de la Bolsa de Valores de Colombia rose 6.34 percent this week.


  • Russian markets were turbulent this week. The ruble sold off sharply on Monday and went on to rally in the back half of the week. The three-month implied volatility of the ruble skyrocketed, signaling that the uncertainty surrounding the currency has yet to be mitigated by Russia’s central bank policy. The ruble rose after the government began intervening in the foreign exchange market this week, while promising further support to come. Nevertheless, other indicators point to the severe damage that has been dealt to the Russian economy. Growth is still expected to stagnate in 2015, interbank lending rates soared to the highest level in eight years and companies (as well as capital) continue to flee Russia. Indeed, recent reports show that many Russian citizens have lost faith in their country’s currency and are seeking alternative means to store value. Despite the end-of-week rally, the MICEX Index closed down 0.72 percent.

Russian Ruble Volatility Looks Similar ro Moves During 2008 Financial Crisis
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  • Hungarian stocks sold off this week while the forint saw steep declines amid rising concern over Russia. The forint declined 3.72 percent against the dollar and the Budapest Stock Exchange Index fell 5.4 percent this week
  • Oil exporting countries saw another down week as oil continued to decline. Brent crude fell 0.4 percent this week.


  • Despite investors’ lingering concerns over a potential near-term correction in the surging Chinese A-share market, China’s total market size continues to look modest compared with its economy.  Total market capitalization of Chinese A-shares accounts for around half of GDP, far from excessive and lagging behind major developing and developed peers.  Unexpectedly strong momentum in A-shares may invite more believers and create an even more compelling case for dual-listed H-shares whose pricing discount widened to over 23 percent this week.

Room for Expansion: Chinese A-Share Market Capitalization Rate at Only Half of GDP
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  • Despite being rattled by political uncertainty, Greece is expected to grow by 2.5 percent or more in 2015, according to the Bank of Greece. If political concerns dissipate, the optimistic growth prospects should boost equities.
  • Global growth concerns have been a drag on emerging markets recently, especially those that are highly export-dependent. The positive manufacturing purchasing managers’ index (PMI) data out of the eurozone this week, combined with more optimistic expectations in Germany, should help reduce these concerns. The eurozone manufacturing PMI came in at 50.8 compared to 50.1 in the prior month. The economic sentiment indicator on Germany’s ZEW economic survey came in much higher than expected at 34.9, revealing an improving outlook in the country.


  • Accelerating direct investment from both foreign and domestic Chinese dairy companies since 2012 have significantly tilted the supply-demand balance in the global milk market.  With China’s raw milk prices at record premiums to the global benchmark, and competition intensifying in the infant milk formula market, challenges are on the rise for the country’s dairy-sector players, from upstream to downstream.
  • The political uncertainty surrounding the snap election in Greece remains a very real threat to the country’s recovery. The opposing party is wholeheartedly anti-austerity and is currently leading the incumbent party by 3.6 percent.
  • The instability of the Russian economy was highlighted as a significant threat this week. The surrounding region saw selloffs simply due to the tremendous volatility surrounding the ruble and the potential for a contagion effect. While the worse may be over, it is definitely too soon to tell.

Short-Term, Tax Free, NEARX, Near-Term Tax Free Fund

Leaders and Laggards

The tables show the weekly, monthly and quarterly performance statistics of major equity and commodity market benchmarks of our family of funds.

Weekly Performance
Index Close Weekly
S&P Energy 596.85 +52.95 +9.74%
S&P Basic Materials 306.92 +14.62 +5.00%
10-Yr Treasury Bond 2.16 +0.08 +3.84%
Russell 2000 1,195.96 +43.51 +3.78%
S&P 500 2,070.65 +68.32 +3.41%
DJIA 17,804.80 +523.97 +3.03%
Nasdaq 4,765.38 +111.78 +2.40%
XAU 69.36 +0.68 +0.99%
Korean KOSPI Index 1,929.98 +8.27 +0.43%
S&P/TSX Canadian Gold Index 145.69 -0.63 -0.43%
Hang Seng Composite Index 3,186.86 -28.85 -0.90%
Gold Futures 1,195.90 -26.60 -2.18%
Oil Futures 56.52 -1.29 -2.23%
Natural Gas Futures 3.45 -0.35 -9.14%
Monthly Performance
Index Close Monthly
Russell 2000 1,195.96 +38.27 +3.31%
Nasdaq 4,765.38 +89.67 +1.92%
S&P 500 2,070.65 +21.93 +1.07%
DJIA 17,804.80 +119.07 +0.67%
Gold Futures 1,195.90 +1.30 +0.11%
S&P Basic Materials 306.92 -5.57 -1.78%
Korean KOSPI Index 1,929.98 -36.89 -1.88%
S&P/TSX Canadian Gold Index 145.69 -3.78 -2.53%
XAU 69.36 -1.85 -2.60%
S&P Energy 596.85 -34.08 -5.40%
10-Yr Treasury Bond 2.16 -0.20 -8.35%
Hang Seng Composite Index 3,186.86 -332.01 -14.83%
Natural Gas Futures 3.45 -0.92 -21.12%
Oil Futures 56.52 -18.06 -24.22%
Quarterly Performance
Index Close Quarterly
Russell 2000 1,195.96 +49.04 +4.28%
Nasdaq 4,765.38 +185.59 +4.05%
DJIA 17,804.80 +525.06 +3.04%
S&P 500 2,070.65 +60.25 +3.00%
Gold Futures 1,195.90 -21.60 -1.77%
S&P Basic Materials 306.92 -11.62 -3.65%
Hang Seng Composite Index 3,186.86 -139.38 -4.19%
Korean KOSPI Index 1,929.98 -123.84 -6.03%
Natural Gas Futures 3.45 -0.39 -10.14%
S&P Energy 596.85 -87.97 -12.85%
S&P/TSX Canadian Gold Index 145.69 -26.48 -15.38%
10-Yr Treasury Bond 2.16 -0.41 -16.00%
XAU 69.36 -17.57 -20.21%
Oil Futures 56.52 -35.89 -38.84%

Please consider carefully a fund’s investment objectives, risks, charges and expenses. For this and other important information, obtain a fund prospectus by visiting www.usfunds.com or by calling 1-800-US-FUNDS (1-800-873-8637). Read it carefully before investing. Distributed by U.S. Global Brokerage, Inc.

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

Foreign and emerging market investing involves special risks such as currency fluctuation and less public disclosure, as well as economic and political risk. 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 Emerging Europe 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.

Bond funds are subject to interest-rate risk; their value declines as interest rates rise. 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. The Near-Term Tax Free Fund may invest up to 20% 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. The Near-Term Tax Free Fund 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.

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.

Past performance does not guarantee future results.

Some link(s) above may be directed to a third-party website(s). U.S. Global Investors does not endorse all information supplied by this/these website(s) and is not responsible for its/their content.

These market comments were compiled using Bloomberg and Reuters financial news.

Fund portfolios are actively managed, and holdings may change daily. Holdings are reported as of the most recent quarter-end.

Holdings as a percentage of net assets as of 9/30/2014:
Amazon 0.00%
Barrick Gold Corp. 0.00%
Berkshire Hathaway 0.00%
BHP Billiton 0.00%
Chow Tai Fook (China Region Fund 0.51%)
Denbury Resources 0.00%
Exxon Mobil 0.00%
Helmerich & Payne (Global Resources Fund 1.49%)
LyondellBasel Industries NV (Global Resources Fund 1.70%, All American Equity Fund 1.03%)
Market Vectors Russia ETF (RSX) 0.00%
Mattel 0.00%
Nabors Industries 0.00%
Noble Corp (Global Resources Fund 1.16%)
Philip Morris (All American Equity Fund 0.94%)
Rio Tinto 0.00%
Southern Copper 0.00%
Starbucks 0.00%
Walgreen’s 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 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 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 NYSE Arca Gold Miners Index is a modified market capitalization weighted index comprised of publicly traded companies involved primarily in the mining for gold and silver.
The Consumer Price Index (CPI) is one of the most widely recognized price measures for tracking the price of a market basket of goods and services purchased by individuals. The weights of components are based on consumer spending patterns.
The MSCI Emerging Markets Index is a free float-adjusted market capitalization index that is designed to measure equity market performance in the global emerging markets.
The MICEX Index is the real-time cap-weighted Russian composite index.
It comprises 30 most liquid stocks of Russian largest and most developed companies from 10 main economy sectors.
The MICEX Index was launched on September 22, 1997, base value 100.
The MICEX Index is calculated and disseminated by the MICEX Stock Exchange, the main Russian stock exchange.
The MSCI Emerging Markets Europe 10/40 Index (Net Total Return) is a free float-adjusted market capitalization index that is designed to measure equity performance in the emerging market countries of Europe (Czech Republic, Greece, Hungary, Poland, Russia, and Turkey). The index is calculated on a net return basis (i.e., reflects the minimum possible dividend reinvestment after deduction of the maximum rate withholding tax). The index is periodically rebalanced relative to the constituents’ weights in the parent index.
The Borsa Istanbul Banks Index (XBANK) is a capitalization-weighted free float adjusted Industry Group Index composed of National Market listed companies in the banking industry. All members of the index are also constituents of the XUMAL Sector Index.
The S&P Oil & Gas Drilling Index is a capitalization-weighted index. The index is comprised of stocks whose primary activity is drilling for oil on land or at sea.
The S&P/TSX Capped Energy Index is a constrained market capitalization-weighted index that consists of Canadian energy sector companies listed on the Toronto Stock Exchange.
The Bloomberg Tanker Index is a capitalization weighted index. The Bloomberg Dry Ships Index is a capitalization weighted index. The index was developed with a base value of 100 as of December 31, 1998.
The Athens Stock Exchange General Index is a capitalization-weighted index of Greek stocks listed on the Athens Stock Exchange.
The Shanghai Composite Index (SSE) is an index of all stocks that trade on the Shanghai Stock Exchange.
The Bombay Stock Exchange Sensitive Index (Sensex) is a cap-weighted index. The selection of the index members has been made on the basis of liquidity, depth, and floating-stock-adjustment depth and industry representation. Sensex has a base date and value of 100 on 1978-1979. The index uses free float.
MSCI World Index is a capitalization weighted index that monitors the performance of stocks from around the world.
The Bovespa Index, or Ibovespa (IBOV), is a gross total return index weighted by traded volume and is comprised of the most liquid stocks traded on the Sao Paulo Stock Exchange.
The Budapest Stock Exchange Index is a capitalization-weighted index adjusted for free float. The index tracks the daily price-only performance of large, actively traded shares on the Budapest Stock Exchange.
The Shanghai A-Share Stock Price Index is a capitalization-weighted index.The index tracks the daily price performance of all A-shares listed on the Shanghai Stock Exchange that are restricted to local investors and qualified institutional foreign investors. The index was developed with a base value of 100 on December 19, 1990.
The Purchasing Manager’s Index is an indicator of the economic health of the manufacturing sector. The PMI index is based on five major indicators: new orders, inventory levels, production, supplier deliveries and the employment environment.


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