Weekly Investor Alert by U.S. Global Investors, Inc.

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USFunds.com October 23, 2015

Table of ContentsIndex Summary Domestic Equity Market Economy and Bond Market Gold Market

Energy and Natural Resources Market Emerging Europe China Region Leaders and Laggards Fund Performance Link

Follow the Leaders: Learning from ETFs, BCA and the NewPMBy Frank HolmesCEO and Chief Investment OfficerU.S. Global Investors

Yesterday I had the pleasure of attending anintensive daylong ETF conference in Austin, justup the road from our office in San Antonio.Hosted by Cantor Fitzgerald, the conference wasdesigned for institutional investors.

Welcoming the group was Reginald ReggieBrowne, the Godfather of ETFs, who now servesas the senior managing director at CantorFitzgerald. His celebrity and prominence arenearly as big as his six-foot-five frameand withgood reason. Reggie has been instrumental inbuilding the ETF landscape over the last decadeand convincing investors of the power of theexchange-traded fund.

One of the panels featured chief investmentofficers from the Texas Teacher RetirementSystem (TRS). Jase Auby, Lee Partridge and TomTull discussed potential shifts in asset allocationunder a rising interest rate environment, amongother topics.

The TRS, one of the largest pension funds in theU.S., makes significant use of gold in itsinvestment strategy, holding the yellow metal inmany forms over the years. The same is true forthe $20 billion University of Texas endowmentfund.

Bruce Zimmerman, chief investment officer for UTIMCO, told CNBC in 2011 that the $20 billion endowmentholds gold as a diversifier and hedge against currencies. This is precisely what we tell investors, and itsvalidating to see such huge funds put it in practice.

During the ETF panel, I asked Jase, Lee, Tom and moderator Ronnie Jung about their thoughts on real interestrates and their relationship with gold. Everyones speculating on when the Federal Reserve will hike interestrates, but real interest rates, as I shared with you this week, appear to have already risen. (As a reminder, realinterest rates are what you get when you deduct the monthly rate of inflation from the 10-year Treasury yield.)A 10 percent upswing in the U.S. dollar is equivalent to the federal funds rate being hikes 100 basis points.

This has had a huge effect on the yellow metal. When real rates are negative, gold has tended to do well.

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Weekly Investor Alert by U.S. Global Investors, Inc.

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Conversely, when theyre positiveand rising, as they are nowits been a headwind for gold. This relationshipwas confirmed by the research of Barry Bannister, chief equity strategist for Stifel, who visited our office lastweek.

I also appreciated the TRS groups bullishness on China. Their position is that, because everyone is negative onChina right now, all sorts of investment opportunities open up from a contrarian point of view.

The Worlds Second-Largest Economy in FluxIve commented before that China has been moving away from a manufacturing-based economy and insteadfocusing more on servicesfinancials, real estate, insurance, ecommerce and the like.

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While the countrys purchasing managers index (PMI) reading has been in contraction mode since March ofthis year, these service industries are ever-expanding. The problem is that the transformation has not been fastenough to offset the massive size of the manufacturing sector.

But investment opportunities in this sector still exist. Anyone whos traveled more than 100 miles inland knowsthat China is under-urbanized. Ever since Deng Xiaoping created special tax-free zones along the easternChinese coastline in 1978, most of the countrys growth has been concentrated in these few regions andmunicipalities. The interior provinces, on the other hand, have remained largely rural.

You can see this for yourself in the chart below, provided by Marko Papic, chief geopolitical strategist for BCAResearch, who briefed our investments team this week. BCA is an influential, independent investment strategyfirm with more than 65 years of experience conducting excellent macroeconomic research.

http://www.usfunds.com/investor-library/frank-talk/chinae28099s-economy-is-undergoing-a-huge-transformation-that-no-onee28099s-talking-abouthttp://www.usfunds.com/media/images/investor-alert/_2015/2015-10-23/CHN-Chinas-Services-Industry-Surpasses-50-Percent-GDP-10232015-LG.pnghttp://www.usfunds.com/media/images/investor-alert/_2015/2015-10-23/CHN-Chinas-Services-Industry-Surpasses-50-Percent-GDP-10232015-LG.png

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We just learned that the Peoples Bank of China cut both lending and saving rates 0.25 percent, to 4.35 percentand 1.50 percent respectively. This will cause negative real rates in China to fall even lower, which is good forgold demand.

It will also likely add to the Feds list of doubts about raising its own rates. In a world where every other majorcountry is stimulating its economy by cutting rates and devaluing its currency, it makes less and less sense forthe U.S. to hike rates.

BCAs Marko Papic stressed the need to see further stimulus in China. Without it, commodities and globalgrowth in general are at risk. Some economists believe we might be headed for a global recession.

Difference of Opinion When It Comes to Defining Global RecessionDepending on who you ask, there are different ideas of what global recession looks like. The generally acceptedone in the U.S. is two consecutive quarterly declines in real GDP. The International Monetary Fund (IMF),however, uses a different measure. Among other economic conditions, annual GDP must fall below 3 percent, ahigh benchmark and one that requires much stimulus.

Global growth for 2015 is at 3.3 percent, the IMF calculates, precariously close to the 3 percent threshold.

BCA Research: The Trans-Pacific Partnership Is Needed to Fast-Track GlobalGrowthThis is where the Trans-Pacific Partnership (TPP) comes into play, which is the stance BCA also takes. Thelandmark trade agreement, involving 12 nations, was signed earlier this month. Although it still requiresratification, the TPP could boost the world economy by an incredible $223 billion by 2025, according to thePeterson Institute for International Economics.

http://www.usfunds.com/media/images/investor-alert/_2015/2015-10-23/COMM-chinese-interior-provinces-still-need-investment-led-growth-10232015-lg.pnghttp://www.usfunds.com/media/images/investor-alert/_2015/2015-10-23/COMM-chinese-interior-provinces-still-need-investment-led-growth-10232015-lg.pnghttp://www.usfunds.com/investor-library/frank-talk/how-these-12-tpp-nations-could-forever-change-global-growth

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Like Father, Like Son: Canada Elects a New LeaderOne of the TPPs biggest supporters was outgoingCanadian Prime Minister Stephen Harper. But thenewly elected Justin Trudeau, member of the Liberalparty, has also come out in support of free tradeagreements. The hope is that he will continue to takethis position where the TPP is concerned.

Although Trudeau earned his degree in educationfrom the University of British Columbia and taughtas a school teacher for many years, he is by nomeans a stranger to politics. Hes served as aMember of Parliament since 2008, and his father,Pierre Trudeau, served as Canadas prime ministerfor 15 years.

Back in the 1970s, in fact, I campaigned for PierreTrudeau alongside Dr. John Evans, a RhodesScholar. This was during Trudeaus first stint inoffice, before being voted out in 1979 and thenreturning to serve again in 1984.

His son, only 43, ran on a campaign of hope and changesound familiar?and promised that, if elected, hewould help the economy by increasing infrastructure spending. Unlike some other world leaders, he wants toput people to work instead of establishing a welfare state. Trudeau plans to raise revenue by taxing recreationalmarijuanaif he succeeds at legalizing it, that is.

One of the main criticisms of Trudeau theYounger is that hes inexperienced politically. Buthere in the U.S., take a look at whos currentlytopping the polls in the Republican field: businessmagnate Donald Trump, neurosurgeon Dr. BenCarson and former Hewlet