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Rare Bird Spotted

I gave up on mutual funds in the late nineties when I realized that most fund managers couldn’t beat the indexes and a matter of fact most don’t try.  The amount of risk necessary to significantly outperform the benchmark is not in their best interest.  Mutual fund companies maintain their beautiful buildings and well paid staff with the exorbitant fees paid by their customers.  The risk of an out-performance strategy failing and resulting in lost customers is too high.  So, most are content with being average.  That’s good for them, but not for my money.

ETFs have since become a large part of my investment strategy. They provide the diversification of mutual funds without the costs.  However, on occasion a rare bird can be spotted in the mutual fund industry.  I believe that U.S. Global Investors – USERX fund is one.  Year to date the Fund is up 38.9% and its annualized return as of 3/31/06 was 87.74%.

U.S. Global just released its Summer 2006 Shareholder’s Report.  It is an excellent read.
 
Here is a link to the presentation:
http://www.usfunds.com/docs/shareholder/Summer2006/1.asp

If you prefer to download pdf:
http://www.usfunds.com/docs/shareholder/shareholder_choose.asp
 
Note:  No responsibility can be accepted for losses that may result as a consequence of trading on the basis of this analysis.

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WHY DEMAND FOR ENERGY AND GOLD WILL CONTINUE:

Source: http://www.jsmineset.com/

According to an article titled “China Seeks to Reduce Gap Between Rich and Poor” in today’s Financial Times, China has launched a program to tax the rich and give more to the poor. Such a concept, which is so common in the West, is pretty new stuff to the Chinese and they are working out the details.

The key point is that China still is faced with the possibility of serious political repercussions, maybe even a revolution eventually if the poor do not attain middle class status.

The rich flaunt their wealth and the poor feel increasingly left out. Since the poor far outnumber the rich, the Chinese have decided to grow their way to prosperity. They understand that growth will lead to the creation of a large middle class.

China realizes that a serious recession, or long period of slow growth, will create many new problems for them. They are determined to grow and grow fast.

Our predictions of Chinese growth have been accurate.

Understanding the psychology of the Chinese political class has allowed us to predict accurately that China will not willingly slow its growth. Further, it has allowed us to accurately predict that they will go to almost any lengths to avoid a recession. To grow the economy China will need many raw materials. The growing prosperity in China and elsewhere will drive demand for gold.

Many economists have disagreed with us and called for a slowdown in China over the last five years. They have all been wrong. They will continue to be wrong as long as the political officials have the power to keep things growing.

Our conclusion continues to be that China will continue to grow and thus demand for energy, and gold will continue to rise.

Monty Guild
Guild Investment Management, Inc.
12400 Wilshire Blvd., Suite 1080
Los Angeles, CA 90025
www.guildinvestment.com
Phone: (310) 826-8600
FAX: (310) 826-8611
mguild@guildinvestment.com

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Investing: How to Make Money on the Industrialization of Brazil, Russia, India and China

EzineArticles.com Basic Author
In October 2003, Goldman Sacks published a research paper titled, “Dreaming with BRICs: the Path to 2050.” The paper states that Brazil, Russia, India and China, commonly referred to as BRIC, may rank among the world’s most dominant economies by mid century.  By 2041, China’s Gross Domestic Product (GDP) could possibly be greater that the United States and larger than everyone else except Japan by 2016.  The BRIC economies together might be larger than the G6 (US, Japan, UK, Germany, France and Italy) by 2039.  Obviously, there are execution risks, but the trends are in place for this to occur.

This has enormous implications. As these countries develop, just think of how their people will benefit and the opportunities that will be created. Demand for items that developed countries middle-class have come to expect will be tremendous.  Consumer items such IPODs and DVD players will be of interest, but that will pale in comparison to the demand for housing with indoor plumbing, electricity, basic appliances and cars.  In Goldman Sachs follow-up report released in 2004, it states that between 2005 and 2015 over 800 million people in these countries will have crossed the annual income threshold of $3000.  By 2025, approximately 200 million people in these economies will have annual incomes above $15,000. 

So, how can we as investors benefit from the industrialization of BRIC?  Continue reading “Investing: How to Make Money on the Industrialization of Brazil, Russia, India and China”

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Why Invest in Gold?

EzineArticles.com Basic Author
I am often asked – why do I invest in gold and gold stocks?  There are many reasons why gold prices are increasing and will continue to increase, but the simplest answer is the basic principles of supply and demand.  In the early 80s, Cabbage Patch dolls were selling 100 times retail price due to lack of supply.  This priced many people out of the market and angered parents around Christmas time.  I don’t believe the company intended to drive prices up with a limited supply strategy – especially since it didn’t benefit from the higher prices as a secondary market evolved.  Thus, to profit from the demand the company had to increase production.  I believe that a similar scenario is evolving in the gold patch.

From 1980-2001, there was very little interest in Gold as it fell to a low of $255/oz.   Mining companies were not able to attract investment capital to bring new mines and projects to fruition, thus gold supplies diminished.  During this same time period, India and China were beginning to see the fruits of their industrialization efforts.  As the countries industrialized, their citizens benefited and began moving from the poor to middle class.  There are literally billions of people in India and China.  Each has cultures that encourage savings and have a strong affinity to gold.  As more move to the middle class and transfer a part of their savings to gold, the investment demand will be tremendous.  This will be exciting for gold investor; however, that will only be a fraction of the demand.  The central banks of Russia, Argentina and South Africa have all announced that they will be increasing their gold reserves with rumors of China and perhaps all of Asia to follow.  

http://www.kitco.com/ind/Hommel/dec122005.html

The gold mining companies do not have the luxury of the Cabbage Patch doll company which was able to quickly ramp up production.  It takes 5-10 years to bring a new gold mine into production.  This will leave the industry in supply deficit for many years to come.  Investment demand alone should be enough to get you excited about investing in gold.  However, there are many more reasons.  The Aden Sisters captured it extremely well in their latest commentary.

http://www.321gold.com/editorials/aden/aden062206.html

The investment demand from individuals as well as governments will put a tremendous demand on an industry that is already in supply deficit.  As with any investment, its price will not go straight to the moon, but will ebb and flow.  However, until supply and demand are in balance prices will continue to increase.  An investor with a systematic approach as described in my previous article, “The No-Brainer Investment Strategy to Double Digit Returns,” will be extremely pleased.Â