USFunds.com • June 17, 2016

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

What Brexit Is All About: Taxation Without RepresentationBy Frank HolmesCEO and Chief Investment Officer U.S. Global Investors

I want to continue the Brexit conversation from last week. With only six days left before U.K. voters head to thepolls, expectations of which side might win are beginning to shift toward the “Brexiteers,” while betting marketsare still putting money on the “stay” campaign. However, the probability of victory for those who favor keepingtheir European Union membership has weakened rather remarkably in the last month, falling from over 80percent in mid-May to around 62 percent today, according to BCA Research.

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One of the main grievances is the burden of EU regulations, which are decided by unelected officials in Brusselswith little to no cost-benefit analysis. These rules, which regulate everything from the number of hours someonecan work (48 hours) to vacuum cleaner power, ultimately stifle growth and innovation.

Consider the so-called FANG stocks—Facebook, Amazon, Netflix and Google. These four tech behemoths, notto mention Apple, rank among the most disruptive, transformative companies the world has ever seen. Theyalso happen to be American. Nothing like them exists in Europe—or, for that matter, anywhere else across theglobe.

When’s the last time a major scientific ortechnological breakthrough was made in France?In Germany? Where’s Europe’s answer to SiliconValley?

It’s not that these countries lack capable thinkersand entrepreneurs. Far from it. Europe was onceat the center of everything, from science to musicto business. But now that Piketty-style “envyeconomics” reign supreme in the EU, innovationhas increasingly shifted west toward the U.S.

These are the questions and concerns Brexiteersand Eurosceptics are bringing to the fore. And nomatter the referendum’s outcome next week,they’re not likely to go away any time soon. Infact, this could very well be the beginning andshould serve as a wakeup call to EU policymakers.Just as American colonists protested taxation without representation over 240 years by dumping an entireshipment of English tea into Boston Harbor, many Brits today are staging their own taxpayers’ revolt bydemanding control over their own economy, budgeting, immigration policies and more.

This is more broadly a debate over common law (the U.K.) and civil law (the Continent). Under common law,there’s greater protection of wealth and intellectual property. You’re presumed innocent until proven guilty.Why are real estate prices higher in London, New York City and Hong Kong than in Rome, Paris and Berlin?Common law.

I invite you to watch Brexit: The Movie, a Hollywood-caliber documentary that spells out the many reasons why

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it’s in the U.K.’s best interest to consider leaving the EU. When London financial markets were deregulated inthe 1980s under Prime Minister Margaret Thatcher, it led to what is known as the “Big Bang,” named for theskyrocketing growth in market activity, and the same could very well happen to the U.K.’s economy post-Brexi.

The High Cost of Indirect TaxationThe U.K.’s EU club membership, so to speak, varies year-to-year, but it averages between 8 and 10 billionpounds—the equivalent of $11 billion and $14 billion—making the kingdom the third largest net contributorafter Germany and France. But the costs don’t stop there. Towering above the contribution to the EU’s budgetare costs associated with the bloc’s endless regulations—what I refer to as indirect taxation.

According to Open Europe, a nonpartisan European policy think tank, the top 100 most expensive EUregulations set the U.K. back an annual 33.3 billion pounds, equivalent to $49 billion. This amount exceedswhat the U.K. Treasury collects in Council Tax (a tax on domestic property) on an annual basis.

And remember, that’s just the top 100. The “acquis communautaire,” the EU’s body of rules, directives andregulations, is a mammoth 170,000 pages long. Among the costliest regulations are the Renewable EnergyStrategy (4.7 billion pounds a year), the Working Time Directive (4.2 billion a year) and the EU Climate andEnergy Package (3.4 billion a year).

Tim Congdon, a prominent British economist and businessman, shows that such regulations—again, passed byunelected officials, similar to agencies here in the U.S.—have been a significant detriment to EU growth. Writingfor the pro-leave group Economists for Brexit, he states: “It is obvious that the economies of EU member statesare falling behind those of other high-income countries, falling behind consistently, and by a significantamount. Too much regulation must be the main explanation.”

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Of course, these rules won’t disappear overnight if the U.K. chooses to leave. But it would be a step in the rightdirection toward repatriating a level of autonomy over the country’s own laws.

In the meantime, investors are bracing for the referendum with gold, which has rallied 7 percent this month,breaking above $1,300 an ounce . The yellow metal has historically been favored as a “safe haven” investmentduring times of political and economic uncertainty. Read my latest gold commentary on Forbes.

And with interest rates at near-zero or negative levels, droves of European fixed-income investors areabandoning government debt for American municipal bonds. The German 10-year government bond yield fellto subzero levels this week for the first time ever, spurring additional European flight into munis, which stilloffer attractive yields, relatively low volatility and diversification.

Explore the $3.7 trillion muni market!

Let’s Not Forget to Clean House Here in the U.S.The EU is hardly the world’s only offender when it comes to passing onerous regulations. The U.S. governmentcontinues to add to the already-bloated Federal Registry, which now stands at 80,260 pages as of the end of2015. That year, federal regulations cost U.S. businesses a staggering $1.885 trillion, or $15,000 per household,according to the Competitiveness Enterprise Institute (CEI). If U.S. regulations were its own economy, in fact,they would be the world’s ninth largest, sandwiched in between India and Russia.

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This is something our next president will have no choice but to address. 2015 was a record year for adding newregulations. We can’t keep going down this path. The problem is that I haven’t seen either Donald Trump orHillary Clinton make a serious commitment to streamlining rules and laws that affect businesses, especiallysmall to medium-size businesses. According to a 2015 National Small Business Association (NSBA) survey,“regulatory burdens” was near the top of the list of challenges small business owners said threatened growthand the survival of their companies. I’m convinced that the candidate with the strongest economic andderegulatory plan has the best chance at winning the election in November.

For whatever it’s worth, a poll in Institutional Investor found that large-scale investors appear to favor Clintonfor president right now by a pretty wide margin. When asked if Wall Street will rally behind Trump, awhopping 84 percent said no.

Happy Father's Day!

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As you’re no doubt aware, Father’s Day is coming up this Sunday.I hope everyone has the opportunity this weekend to spend somequality time with your father(s) and child(ren).

I was interested to read today that the first Father’s Day wascelebrated in Spokane, Washington, in 1910—around the sametime as the first Mother’s Day. But whereas Mother’s Day receivedofficial federal recognition in 1914 under President WoodrowWilson, it wasn’t until President Richard Nixon’s administrationthat fathers got their due respect. Before that time, it was evenproposed that both Mother’s and Father’s Day be rolled into asingle Parents’ Day.

Have a blessed weekend!

Index SummaryThe major market indices finished down this week. The Dow Jones Industrial Average lost -1.06percent. The S&P 500 Stock Index fell -1.19 percent, while the Nasdaq Composite fell -1.92 percent. TheRussell 2000 small capitalization index lost -1.65 percent this week.

The Hang Seng Composite lost -3.49 percent this week; while Taiwan was [down -1.69 percent and theKOSPI fell -3.18 percent.

The 10-year Treasury bond yield fell 3 points to 1.61 percent.

Domestic Equity Market

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StrengthsTelecommunications was the best performing sector for the week, increasing by 1.39 percent versus anoverall decrease of -1.17 percent for the S&P 500.

Symantec Corp was the best performing stock for the week, increasing 15.43 percent. The companypurchased Blue Coat Systems Inc. in a deal that will expand its clientele to 385,000. BTIG raised therating to buy from neutral.

Microsoft announced it would acquire professional networking site LinkedIn for $26.2 billion in thebiggest company-for-company tech buy since HP and Compaq merged back in 2001. The deal isexpected to see Microsoft and LinkedIn mostly operate as independent entities and is expected to becompleted this calendar year.

WeaknessesHealth care was the worst performing sector for the week, decreasing by -2.08 percent versus an overalldecrease of -1.17 percent for the S&P 500.

Synchrony Financial was the worst performing stock for the week, falling -16.33 percent. The stock fellafter the company announced that it is expecting a 20-30 basis point increase in its net charge-off rateover the next 12 months and is setting aside more money for loan losses.

According to Bank of America Merrill Lynch's latest fund manager survey, the amount of cash beingheld by those surveyed by the bank is at the highest level in about 15 years (since November 2001).Markets are concerned about the U.K. voting to leave the European Union, China slowing more thanofficial data says, the potential for the Federal Reserve to raise interest rates and/or make a policymistake, all while labor is beginning to eat into capital's profits in the U.S.

OpportunitiesEvidence is materializing that media companies are through the worst. While value has been restored tothe S&P movies & entertainment index, consumers continue to demonstrate a healthy appetite forcontent consumption. Personal spending on recreation and electronics has reaccelerated as a share oftotal outlays.

Many Wall Street analysts are reading Microsoft’s acquisition of LinkedIn as a sign that the technologyspace could be ready for some serious M&A activity.

The latest retail sales report shows that pharmacies are enjoying a boom in top-line growth, whilehypermarkets are finally regaining traction.

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ThreatsOn Monday, the latest poll from The Guardian showed the 'leave' camp is up 53-47 on the 'remain'camp, bucking conventional wisdom that has long held the 'remain' would eventually win the day. Adecision to leave the European Union would have a big impact on financial markets.

The latest wage tracker from the Atlanta Fed shows that wages are going up. The tracker follows medianworker pay in the U.S., which has risen 3.5 percent year-over-year, as of May. Note that the 2.5 percentyear-on-year increase in the May jobs report brought average hourly earnings gains for 2016 to atracking rate of 3.2 percent, not far off the Atlanta Fed's measure. This latest wage indicator also cameafter the latest NFIB Small Business Optimism report, which showed optimism in May ticked up slightlyto 93.8. More significantly, however, the report shows the labor market continues to be squeezed. Thisupward pressure on wages could lead to lower margins and profits if companies are unable to pass onwage inflation to the consumer.

The current tight correlation between the 2-year Treasury yield, a good proxy of Fed funds rateexpectations, and U.S. equities suggests that higher share prices require better economic/profit growthrather than simply a less hawkish Fed. Also, history shows that P/E multiples get squeezed on asustained basis once monetary conditions tighten courtesy of the Fed. Thus, a sustainable advance inU.S. equities from current levels requires a new profit up-cycle. For this to happen, it is critical for therest of the world to demonstrate an internal demand impulse. That seems unlikely given present globalconditions.

The Economy and Bond MarketStrengths

The May report on retail sales showed they were up 0.5 percent over the prior month, more than the 0.3percent increase that was expected. The report suggests consumer spending is gaining steam despite theslowdown in job creation.

Prices for imported goods rose in May at their fastest pace in over four years, a sign that rising oilprices and the fading strength of the dollar are contributing to firming domestic inflation. This is awelcome sign amid global deflationary pressures.

Month-over-month housing starts in the U.S. came in better than expected on Friday, falling only 0.3percent, better than analysts’ expectations for a drop of 1.9 percent.

WeaknessesIndustrial production for May came in at negative 0.4 percent, down from prior growth of 0.7 percentand below expectations of negative 0.2 percent. The report highlighted the factory sector’s continuedstruggles.

The U.S. Supreme Court rejected Puerto Rico’s bid to let its public utilities restructure bonds over theobjection of creditors, leaving the island’s $70 billion debt crisis squarely in the hands of Congress. TheSupreme Court case focused on the federal law that bars Puerto Rico and the District of Columbia fromdoing what U.S. states are entitled to do: authorize bankruptcy filings by public utilities and othermunicipalities. Puerto Rico sought to get around that provision in 2014 by passing a local law thatoffered an option similar to bankruptcy.

The Federal Reserve’s specific reference this week to “Brexit” considerations further underscores the

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recent global angst over the upcoming U.K. referendum.

OpportunitiesAccording to BCA Research, following its recent decline, the 10-year U.S. Treasury yield appears to befairly valued. Accordingly, the group advocates a benchmark duration stance on a 6 to 12-monthhorizon.

While consumer spending contributed only 1.66 percent and 1.29 percent to GDP growth in the fourthquarter 2015 and first quarter 2016, this weakness was driven entirely by spending on goods. Consumerspending on services remained robust. Spending on durable goods, which subtracted 0.09 percent fromGDP in the first quarter, is very sensitive to changes in interest rates. The lower Treasury yields of thepast few months should lead to a rebound in this segment of GDP.

If a "yes" vote for Brexit were to materialize, the ensuing drop in yields could provide an opportunity fora short-term tactical long duration position.

ThreatsThe disappointing payroll report is in sync with a number of other measures showing that the U.S. labormarket is softening. The share of U.S. workers involuntarily stuck in part-time jobs has risen while thehiring rate has decreased and the rate of people quitting has come off its highs, suggesting workers arebecoming less confident about the employment outlook. This is consistent with a decline in online jobadvertising and waning consumer optimism about the job market outlook. Reflecting these trends, theFed's Labor Market Conditions Index has fallen for five straight months. The big risk is that thesoftening labor market is foreshadowing sharply weaker growth ahead.

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The yield on the 10-year German bund fell below zero for the first time in history and joined Japan andSwitzerland’s in the “negative yield club.” Tuesday's drop below zero came amid a renewed demand forsafety assets as fears of a slowing global economy and the possibility of a British exit from the EuropeanUnion weigh on investor confidence.

The International Energy Agency (IEA) says the oil market will rebalance in the second half of 2016 butwill return to surplus in 2017. “At halfway in 2016, the oil market looks to be balancing; but we must notforget that there are large volumes of shut-in production, mainly in Nigeria and Libya, that could returnto the market, and the strong start for oil demand growth seen this year might not be maintained," theIEA said.

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Gold MarketThis week spot gold closed at $1,299.00, up $25.10 per ounce, or 1.97 percent. Gold stocks however, asmeasured by the NYSE Arca Gold Miners Index, lost 0.87 percent. Junior miners outperformed seniors for theweek as the S&P/TSX Venture Index traded off just 0.03 percent. The U.S. Trade-Weighted Dollar Indexslipped with a 0.40 percent loss.

Date Event Survey Actual Prior

Jun-12 China Retail Sales YoY 10.1% 10.0% 10.1%

Jun-15 U.S. PPI Final Demand YoY -0.1% -0.1% 0.0%

Jun-15 FOMC Rate Decision (Upper Bound) 0.50% 0.50% 0.50%

Jun-16 Eurozone CPI Core YoY 0.8% 0.8% 0.8%

Jun-16 U.S. Initial Jobless Claims 270k 277k 264k

Jun-16 U.S. CPI YoY 1.1% 1.0% 1.1%

Jun-17 U.S. Housing Starts 1150k 1164k 1172k

Jun-21 Germany ZEW Survey Current Situation 53.0 -- 53.1

Jun-21 Germany ZEW Survey Expectations 4.8 -- 6.4

Jun-23 U.S. Initial Jobless Claims 270k -- 277k

Jun-23 U.S. New Home Sales 560k -- 619.k

Jun-24 U.S. Durable Goods Orders -0.5% -- 3.4%

StrengthsThe best performing precious metal for the week was gold; with a 1.97 percent rise in what was avolatile week of trading. As gold prices head for a third straight weekly gain, reports Bloomberg, at leastone measure shows that bullion could have even further to run. Open interest, which is a tally ofcontracts in Comex futures, reached a one-month high as traders remain bullish.

Investors continue to add money to precious metal funds, even as the gold rally shows signs of slowing,reports Bloomberg. Assets in gold-backed ETFs have risen every day in June due to the increasedgeopolitical stress caused by the U.K. referendum. Similarly, at Sharps Pixley, a gold showroom inLondon’s Mayfair district, the demand for bullion bars and coins is rising, as investors seek a safe havenmetal in case of a British exit from the EU.

Gold jumped this week as fewer Federal Reserve officials expect the central bank to hike interest ratesmore than once this year. According to Bloomberg, projections from the FOMC show the number ofofficials who see just one increase rose to six from one in the previous forecasting round in March.

Weaknesses

The worst performing precious metal for the week was platinum; with a loss of 2.18 percent. Theplatinum price to gold price ratio has hit its lowest point since 1982. Historically, platinum has traded ata premium to gold. While platinum may look like a bargain relative to gold, the future acceptance ofelectric cars could be a game changer.

On Thursday, the British pound erased losses against the U.S. dollar following the killing of a U.K.lawmaker, reports Bloomberg. The tragedy fueled speculation that the nation’s voters will be more likelyto favor remaining in the EU in next week’s referendum, continues the article, sending gold down fromnear two-year highs after it surged post the FOMC meeting.

Sabina Gold and Silver Corp. received a report from the Nunavut Impact Review Board (NIRB) thisweek relating to its Back River Gold Project in Nunavut, Canada. In the report, the NIRB recommendedthat the project not proceed to the licensing and permitting regulatory phase, noting the need for furtherconsideration concerning caribou and climate change. Sabina’s share price was down 38 percent for theweek.

OpportunitiesOn Sunday, George Ogilvie resigned as CEO from Kirkland Lake Gold and won’t stand for election as adirector at the company’s annual meeting, reports the Canadian Press. Former CEO of Lake Shore Gold,Anthony Makuch, will step in as CEO. We have great respect for George Ogilvie as he was the catalystthat turned Kirkland Lake around. He accepted the CEO position in November of 2013, and as you cansee in the chart below, during Ogilvie’s time at Kirkland, you would have never known this was a goldcompany that he was managing. Under Ogilvie’s tenure the share price of Kirkland Lake rose 262.46percent while the S&P/TSX Global Gold Index only gained 41.29 percent. The gains for the index reallyonly came over the last six months when the gold price started to rise. We wish George further successesin his future endeavors.

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Brexit or not, James Steel of HSBC believes that gold can still rise to $1,400 an ounce, Barron’s reports.If Britain chooses to stay, Steel says the precious metal is likely to fall, but to no more than $1,220 anounce, or a 7 percent downside. And if the Brexit campaign succeeds? According to a Bloomberg surveyof 22 traders and analysts, gold prices could rise to the highest in more than two years – potentiallyreaching $1,350 an ounce within a week of the vote.

Under new proposed regulations, India is looking to open up mining of gems and precious metals,reports Bloomberg, in order to cut reliance on imports. Mines Secretary Balvinder Kumar said in aninterview that the country is set to auction about 50 blocks for diamond and gold exploration in thefiscal year starting April 1, aided by changes in the national mineral exploration policy to be unveiled by

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month end. Historically, it has been extremely difficult for any company to move a mining projectforward. Rio Tinto Group has been trying to get approvals for its Bunder diamond mine site since 2004.If India’s new mineral policies provide an economic path to production, then watch this space forpotential new discoveries in the future.

ThreatsThe current ratio between gold and copper is showing a “recession-era fear level,” Bloomberg reports.Gold jumped to the most expensive relative to copper since 2009 this week. The price of copper (seen asan economic bellwether), has slumped over Brexit worries, while the low interest rate outlook has fueleddemand for bullion – driving the ratio between the two farther apart

India’s monsoon season could be reduced by the receding El Nino, reports Bloomberg Intelligence,leading to a poor harvest in the country, and thus, rising food prices. This could lead the world’s largestconsumer of silver, and second largest in gold, to spend more on food this year than jewelry, ultimatelyundermining demand for precious metals in the country.

Jeff Rhodes, CEO of Zee Gold in Dubai, added color to India’s situation this week during an interview onBloomberg TV. Rhodes said there is no demand for the metal now in India due to the monsoon, addingthat kilo bars are even selling at a $30 discount in the country. The price of gold, according to Rhodes,could fall to $1,100 an ounce if the U.K. votes to stay in the EU, but has the potential to climb to $1,600an ounce if the U.K. leaves.

June 16, 2016The Fed Stays PutAs Gold PushesHigher

June 15, 2016Negative RatesContinue to Be Positivefor Gold

June 3, 2016Frank Holmes: Energy,Gold and Short-TermDebt

Energy and Natural Resources MarketStrengths

The U.S. oil rig count rose for a third consecutive week. The rig count is viewed as a proxy for activity inthe sector, and recent strength suggests that market conditions have improved to a level whereproducing companies are comfortable redeploying cash into exploration and development.

The best performing sector for the week was the TSX Capped Metals and Mining Index. The index ofbase metal mining companies rose 3.9 percent for the week led by a small rebound in copper prices, andpositive read-through following takeover speculation of index-leader Turquoise Hill Resources.

Turquoise Hill Resources, a Canadian major base metals producer was the best performing stock in thebroader natural resource space after rallying 16 percent for the week. The stock rallied on renewedspeculation that Rio Tinto may bid for Turquoise Hill in order to consolidate its ownership of the OyuTolgoi mine in Mongolia.

WeaknessesWTI crude prices dropped 1.9 percent for the week as fears of a “Brexit” event weighed heavily oninvestors’ minds. The commodity reached a one-month low on Thursday before recovering much of itsweekly drop on Friday supported by a weaker dollar.

The worst performing sector for the week was the S&P 500 Oil & Gas Refining and Marketing Index.The index dropped 4 percent for the week as oil prices nearing $50 per barrel erode refining margins.

The worst performing stock for the week in the S&P Global Natural Resources Index was Petrochina.The Beijing-based integrated oil producer dropped 8.3 percent for the week as data showed China’s oiloutput dropped the most since 2001 as companies, including Petrochina, struggle to maintain output

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volumes at current oil prices.

OpportunitiesThe gold bull market is likely just beginning. A recent article by the team at Red Cloud KS shows thatthe gold price ratio to the S&P 500 Index has started to turn, suggesting that precious metals andrelated equities may continue to outperform other asset classes. In addition, the current ratio of 0.6 isfar below the 1.2 historic average ratio, which suggests that gold is significantly undervalued relative tothe overall market.

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Global crude oil demand expectations may be understated. The International Energy Agency (IEA)revised its global demand forecast higher for crude oil this year. The agency now expects oil demandglobally to grow by 1.3 million barrels per day in 2016, leading to the conclusion that the oil market willreach a supply demand balance in the second half of 2016.

China, the world’s top consumer of base metals, will boost stockpiles according to a Bloomberg story.The nation will increase its reserves and study a program for companies to build stockpiles in additionto inventories, resulting in a demand boost for base metals (which have seen weak demand amid aglobal economic slowdown).

ThreatsChina’s growth in fixed asset investment (FAI), a proxy for construction and infrastructure spending,slumped to a 16-year low in May. While government sector spending remained strong, the private sectorcontinues to slow at a worrisome pace, suggesting that the property sector has peaked. China’sinfrastructure investment and property sector construction are key demand sources for globalcommodities.

Monetary stimulus in China has stalled. China M2 Money Supply dropped to a growth rate of 11.8percent, the lowest pace of expansion since the turn of the century. In addition, total social financing, abroader measure of credit availability in the country slumped to RMB 660 billion in May, down 12.1percent since last month, and down 37.2 percent on a yearly basis. The resulting environment puts hugepressure on small- and medium-sized companies putting a sustained recovery in jeopardy.

The divergent paths of gold and copper prices are reminiscent of a recession era. The spread betweenthe prices of the two major commodities reached its highest since 2009, and displays similarcharacteristics to those seen during the global financial crisis, leading some market commentators tosuggest we may be nearing a crisis event.

China RegionStrengths

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The Philippine Stock Exchange Index continues to be one of the region’s strongest-performing indices inrecent months. The index capped another positive week post-elections and is once again approaching52-week highs.

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TCL Communication Technology Holdings rose some 29 percent this week as TCL Industries Holdingsproposed to take the communications company private for 7.5 Hong Kong dollars a share.

Continued strength in the Japanese yen may prove useful to Chinese exporters. Yen strength hit a 52-week highs this week, as the dollar-yen cross fell below 104.

WeaknessesMSCI announced it would not include China’s A-shares in its global emerging markets index, which,while perhaps short-term negative, had at least been well-telegraphed and may well spur additional andnecessary reform in China.

Renhe Commercial Holdings was the worst performer in the Hang Seng Composite Index over the lastfive days, falling nearly 17 percent in that time. S&P Global Ratings continues to assess the company’sleverage and liquidity as the underground mall operator plans a sale of assets.

The risk-off surge in the Japanese yen this week dwarfed movement in Asia ex-Japan currencies thisweek, though the Malaysian ringgit, Korean won and Philippine peso all declined between 0.6 and 0.7percent over the last five trading days.

OpportunitiesThe $5.5 billion Shanghai Disneyland Resort officially opened its doors to visitors on Thursday.Although Disney holds only a minority position in the park, reports the New York Times, analystsbelieve the profit potential for the company remains nothing short of spectacular.

On Thursday, the State Council of China posted guidelines on its website indicating the nation willincrease metals reserves, accelerate the closure of excess capacity and provide tax breaks for producers,reports Bloomberg News. The Asian nation is struggling with a raw-materials glut “amid the slowestgrowth in decades,” continues the article. “The guidelines have boosted market sentiment,” Li Wei, ananalyst with Huatai Futures said. “Increasing stockpiles, especially state reserves, will support prices.”

Wealthy Chinese consumers have increasingly turned to Western sports brands like Adidas and Nike,reports Bloomberg, shifting their preference from luxury brands. Catherin Lim, an analyst in Singapore

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with Bloomberg Intelligence, believes that Chinese consumers concerned about flaunting their lavishspending want to buy products that are obviously expensive, but not excessively glitzy. Last year, sales inGreater China for Adidas grew 38 percent, and Nike sales were strong too—orders are up fromSeptember 2015 to April 2016.

ThreatsOn Tuesday, index provider MSCI announced its decision not to allow Chinese A-shares into itsemerging markets index, reports Reuters, citing the need for Beijing to do more work to liberalize itscapital markets. Although markets tumbled following the news, losses were reversed Wednesday asinvestors shrugged off the decision.

According to a survey of Chinese CFOs regarding their expectations for the climate of China movingforward, particularly as the country settles into its “new normal,” or slower growth, many have apessimistic view of the future. According to the China Business Review, the survey done by DeloitteChina, shows that CFOs are less optimistic in the medium to long term, citing further economic turmoiland detrimental governmental policies and regulations as the basis for their outlook.

Despite accelerating home sales in China, stocks of developers on the mainland have lagged theircounterparts in Hong Kong where prices are going the other way, reports Christopher Langner ofBloomberg News. Even though companies on the mainland are much bigger, shares of the 10 biggestpublicly traded Chinese developers by revenue are down, on average 15.8 percent this year. Oneexplanation, in addition to the overall bleak view of China’s economy, points to Chinese developerssteadily increasing their amount of debt since given access to local bond markets.

Emerging EuropeStrengths

Romania was the best performing country this week, gaining 1.2 percent. Central Emerging Europe(CEE) countries sold off this week on increasing fear of a Brexit, however Romania managed tooutperform. It could be the most resilient country within the CEE during the Brexit, given the powerfulfiscal stimulus injected by the government starting last year.

The Russian ruble was the best performing currency this week, gaining 50 basis points against the U.S.dollar despite Friday’s announcement that EU sanctions are being extended for another year overRussia’s annexation of the Crimean peninsula. The announcement came one day after the EUCommission President Jean-Claude Juncker met with Russian President Vladimir Putin in St.Petersburg. Brent crude oil declined 2.4 percent and closed below $50 per barrel.

The energy sector was the best performing sector among Eastern European markets this week.

WeaknessesGreece was the worst performing market this week, losing 5.2 percent. The Athens Stock Exchange soldoff at the beginning of the week along with other markets, but gained 5.4 percent on Friday afterEurogroup approved the release of EUR 7.5 billion to Greece. The year-to-date government budget wasreported at a surplus of EUR2.3 billion, way ahead of the EUR.8 billion deficit target.

The Polish zloty was the worst performing currency this week, losing 1.2 percent against the U.S. dollar.Poland is vulnerable to a U.K. exit, as it may curb the subsidies Warsaw receives from the bloc’s commonbudget. Also, the vote to leave the eurozone may question the existence of the EU as a whole and lead toa weakening of countries that have not adopted the euro, Erste Bank Group said.

The consumer discretionary sector was the worst performing sector among Eastern European marketsthis week.

OpportunitiesMore than $2 trillion have been wiped from global equities in the past week on speculation that the U.K.will vote to leave the eurozone. The latest polls show the “leave” camp gaining votes but it is still tooclose to call. Should the U.K. vote to stay in the eurozone, markets will likely rebound sharply.

Poland received its first commercial liquefied natural gas from Qatar, and another shipment fromNorway is scheduled to arrive in the Polish port on the Baltic Sea later this month. Poland relies onRussian gas for two-thirds of its needs and is seeking to lower prices under a long-term contract withGazprom that expires in 2022.

The pace of Russia’s GDP contractions slowed to 1.2 percent year-over-year in the first quarter of thisyear, from 3.8 percent year-over-year contraction in the fourth quarter of last year. HSBC’s globalresearch team believes that the recession in the economy appears to be coming to an end; the Russianeconomy will hit bottom in the second quarter, and annual growth will turn positive in the third quarter.

ThreatsGermany’s 10-year bond yield dropped below zero for the first time as the odds of a U.K. exit from theEuropean Union are increasing, boosting demand for safe havens. Investors who buy and hold thesecurities until the due date will get back less than what they paid

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Raffaella Tenconi from Wood & Company, in her latest publication “CEE macro: preparing for Brexit,”said that if the U.K. exits the eurozone, the EU funds will shrink. On a positive note, Tenconicommented that if Great Britain votes to leave the EU next week it may take a few years to actuallyaccomplish this due to long processes of negotiations. She expects the EU to face the drop in funds from2021 onward. The U.K. is the third largest net contributor to the EU budget as the chart belowillustrates.

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Sberbank’s CEO Herman Gref, in an interview with Bloomberg, said the Brexit will have a very negativeinfluence on the Russian economy along with the country’s currency, potentially shaving off 1 percent ofGDP. Banks’ shares declined about 10 percent during the past week and the announcement of the U.K.leaving the EU could cause an even further decline.

Leaders and Laggards

Weekly Performance

Index CloseWeekly

Change($)Weekly

Change(%)

DJIA 17,675.16 -190.18 -1.06%

S&P 500 2,071.22 -24.85 -1.19%

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S&P Energy 500.82 -0.33 -0.07%

S&P Basic Materials 296.73 -2.48 -0.83%

Nasdaq 4,800.34 -94.21 -1.92%

Russell 2000 1,144.70 -19.23 -1.65%

Hang Seng Composite Index 2,740.40 -99.08 -3.49%

Korean KOSPI Index 1,953.40 -64.23 -3.18%

S&P/TSX Canadian Gold Index 232.21 +0.45 +0.19%

XAU 90.34 -0.05 -0.06%

Gold Futures 1,301.50 +25.60 +2.01%

Oil Futures 48.13 -0.94 -1.92%

Natural Gas Futures 2.64 +0.09 +3.40%

10-Yr Treasury Bond 1.61 -0.03 -1.95%

Monthly Performance

Index CloseMonthly

Change($)Monthly

Change(%)

DJIA 17,675.16 +148.54 +0.85%

S&P 500 2,071.22 +23.59 +1.15%

S&P Energy 500.82 +11.61 +2.37%

S&P Basic Materials 296.73 +9.68 +3.37%

Nasdaq 4,800.34 +61.22 +1.29%

Russell 2000 1,144.70 +41.74 +3.78%

Hang Seng Composite Index 2,740.40 +30.65 +1.13%

Korean KOSPI Index 1,953.40 -3.33 -0.17%

S&P/TSX Canadian Gold Index 232.21 +16.77 +7.78%

XAU 90.34 +6.66 +7.96%

Gold Futures 1,301.50 +24.40 +1.91%

Oil Futures 48.13 -0.06 -0.12%

Natural Gas Futures 2.64 +0.64 +32.08%

10-Yr Treasury Bond 1.61 -0.25 -13.26%

Quarterly Performance

Index CloseQuarterly

Change($)Quarterly

Change(%)

DJIA 17,675.16 +72.86 +0.41%

S&P 500 2,071.22 +21.64 +1.06%

S&P Energy 500.82 +27.47 +5.80%

S&P Basic Materials 296.73 +11.52 +4.04%

Nasdaq 4,800.34 +4.69 +0.10%

Russell 2000 1,144.70 +43.03 +3.91%

Hang Seng Composite Index 2,740.40 -76.89 -2.73%

Korean KOSPI Index 1,953.40 -38.72 -1.94%

S&P/TSX Canadian Gold Index 232.21 +43.43 +23.01%

XAU 90.34 +19.16 +26.92%

Gold Futures 1,301.50 +44.90 +3.57%

Oil Futures 48.13 +8.69 +22.03%

Natural Gas Futures 2.64 +0.74 +38.59%

10-Yr Treasury Bond 1.61 -0.27 -14.14%

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Holdings may change daily. Holdings are reported as of the most recent quarter-end. The following securities mentioned inthe article were held by one or more accounts managed by U.S. Global Investors as of 03/31/2016: Kirkland Lake Gold Corp. Lake Shore Gold Corp. Apple Inc. Gazprom PAO Sberbank of Russia PJSC

The Dow Jones Industrial Average is a price-weighted average of 30 blue chip stocks that are generally leaders in theirindustry.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 theRussell 3000®, a widely recognized small-cap index.The Hang Seng Composite Index is a market capitalization-weighted index that comprises the top 200 companies listedon 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 TaiwanStock Exchange.The Korea Stock Price Index is a capitalization-weighted index of all common shares and preferred shares on the KoreanStock Exchanges. The Philadelphia Stock Exchange Gold and Silver Index (XAU) is a capitalization-weighted index that includes the leadingcompanies 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 arecapped 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 subsetof the S&P 500.The S&P 500 Materials Index is a capitalization-weighted index that tracks the companies in the material sector as asubset 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 the1941-43 base period.The S&P 500 Industrials Index is a Materials Index is a capitalization-weighted index that tracks the companies in theindustrial 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 consumerdiscretionary 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 theinformation 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 inthe 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 subsetof the S&P 500.The S&P 500 Healthcare Index is a capitalization-weighted index that tracks the companies in the healthcare sector as asubset 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 thetelecom 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 tradedcompanies 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 marketbasket of goods and services purchased by individuals. The weights of components are based on consumer spendingpatterns.The Purchasing Manager’s Index is an indicator of the economic health of the manufacturing sector. The PMI index isbased on five major indicators: new orders, inventory levels, production, supplier deliveries and the employment

environment.The S&P/TSX Venture Composite Index is a broad market indicator for the Canadian venture capital market. The index ismarket capitalization weighted and, at its inception, included 531 companies. A quarterly revision process is used toremove companies that comprise less than 0.05% of the weight of the index, and add companies whose weight, whenincluded, will be greater than 0.05% of the index.

S&P 500 Oil and Gas Refining and Marketing Index compares the performance of the component stocks in the oil andgas refining and marketing industry.The S&P Global Natural Resources Index includes 90 of the largest publicly-traded companies in natural resources andcommodities businesses that meet specific investability requirements, offering investors diversified, liquid and investableequity exposure across 3 primary commodity-related sectors: Agribusiness, Energy, and Metals & Mining.M2 Money Supply is a broad measure of money supply that includes M1 in addition to all time-related deposits, savingsdeposits, and non-institutional money-market funds. S&P/TSX Capped Diversified Metals and Mining Index is an index ofcompanies engaged in diversified production or extraction of metals and minerals .S&P 500 Movie and Entertainment Index is comprised of stocks in the movie and entertainment subindustry of the S&P500.The Federal Reserve Labor Market Conditions Index measures the strength of US job market. The index is derived from19 labor market indicators, with unemployment rate and private payrolls being the most important. It also includes thelabor force participation rate, data on wages, hiring and dismissals. A reading above 0.0 indicates improving labor marketactivity, below indicates deteriorating activity.S&P/ TSX Global Gold Index provides an investable index of global gold securities. The Philippine Stock ExchangeComposite Index (PSEi) is a major stock market index which tracks the performance of the most representativecompanies listed on The Philippine Stock Exchange. It is a free-float, capitalization-weighted index .

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