You’d be surprised at what Greeks say they’ve lost most amid the debt crisis.
It isn’t money or jobs… it’s the loss of their sovereignty.
Well, last weekend, Greeks sent a loud message to those who’ve imposed austerity upon them… They elected a government vowing to end all German-dictated austerity measures.
Ahead of the election, I had an opportunity to discuss Greece with emerging Europe expert, Frank Holmes.
Frank is the CEO of U.S. Global, and the perfect person to offer investment wisdom during such a turbulent time. Will Greece jettison the EU? Click the video below to listen.
Founder, Wall Street Daily
Robert Williams: Hi there – Robert Williams, Founder of Wall Street Daily here. I have with me today Frank Holmes, CEO of U.S. Global Investors. I regard Frank as the foremost expert on emerging Europe and resources, particularly gold. So with crisis still brewing in Europe, I couldn’t think of a better person to lend us some insight.
Frank, let’s jump right in. Please get us up to speed on where we presently stand on Europe, if you would.
Frank Holmes: Bad news is good news because these governments are panicking, and they will do everything to try to stimulate the economy. They’re looking at every monetary policy they can. They’re still on steroids on excessive regulations, which is a taxation on the system. There’s been no fiscal balancing factors. It’s just cheaper money, cheaper money, and I think that that’s what you have to recognize.
When it comes to Greece, Greece will be just a battle, and it’s a battle of words to try to get a culture that is flawed. And all the best, most motivated, entrepreneurial Greeks are over here in America and Canada. And the ones that stayed back, have a socialist mindset. And that process of turning around just takes longer, and I think that it’ll – I don’t think the Greeks are going to leave. I don’t think that’ll happen. It’ll create some turmoil. Rates will fall lower, and we’re going to see this fear of deflation. But the euro is going to decline against the dollar, and we’re going to get a big economic surge in six months.
Robert Williams: I sense some optimism there, Frank. So might now be the perfect time to get some portfolio exposure to Europe?
Frank Holmes: Oh, it’s the best time. Bad news is good news. And so you can buy – you can go in Germany, and you can buy German stocks, you know… the thing your government is paying 50 base points, and you can turn around and buy stocks paying 3% dividends growing at 5% a year. I mean, these stocks are going to continue – and the other thing that’s really interesting that we’ve found is that many of these countries, they buy their own stocks. So Switzerland has become one of the largest shareholders, Japan with all that money – monetary inflation. The central bankers realized that real assets are important besides gold. They’ve been buying their biggest market cap stocks so you see their stock markets going to new highs. I think Japan now owns 2% of the stock market, the central bank does.
Robert Williams: Frank, will you share with us which regions and sectors you’re most bullish on right now? And tell us a little bit about your strategy sessions at U.S. Global and how you generate these forecasts. I mean, do you rank certain countries from strongest to weakest?
Frank Holmes: We do look at countries. We think one of the most oversold countries is Russia, and we’ll see how it happens in the winter with Ukraine, but it’s one of the cheapest stocks on many factors that you can take a look at. And, you know, mean inversion looks like it’s in place there. Last year, the slowdown in China – it’s amazing that the A-share markets in China went up 50%. So this bad news is good news, and the opportunity is – the brain mindset is… where is it and where’s the money flowing?
From sectors around the world, we see healthcare as still being a very strong sector in Europe, in America, Asia. Staples – basic staples, we look at the Wal-Marts of the world and food, etc., supermarkets. They seem to be strong all around the world on a relative strength basis. Utilities have had a big, big move because of low interest rates, and also falling energy prices mean that they have profit margin expansion.
So there are opportunities, and going forward for this year… 2015, I think in six months from now. we’ll start seeing an uptick in emerging markets. The dollar will be coming off, and Europe will find a base somewhere.
Robert Williams: Frank, you mentioned the dollar coming off. What are we to make of the rally we’ve been seeing in the dollar? Is it real or artificial?
Frank Holmes: It’s real because it’s a – [laughter] they’re all ugly, so it’s all relative. And who has the strongest economy right now in the world is America. We import less oil so that makes our trade balance look more attractive. There’s many fundamental factors that makes America look so much more attractive than other parts around the world. And so I think, though, anytime we’ve had a strong currency exports drop, unemployment goes up, and then the government’s panic, so I think the strong dollar will start to fade. And with the price of oil falling – the high-income job creation in America was coming out of trains shipping sand down to Texas and the Bakken for fracking and drillers. So we’re going to get a contraction in drilling. We’re going to get traction in layoffs in high-paying job. That will keep interest rates low in America.
The benefits that will happen is that in a year from now, the supply coming from all this fracking will stop because of – what people don’t realize is that when you’re a fracker… Meet the Frackers, as the funny movie is, as a play on words. But the issue here is that if you’re not continuously drilling, your depletion falls, your decline rates, they call them. So let’s say you have a discovery of 1,000 barrels a day. Normally, a year later… it’s 800, then it’s 600, then it’s 400, and it stabilizes. When you’re a fracker, it goes from 1,000 barrels to 100 in a year, so you continuous have to be hitting those – and then they’ll stay there for 10 years at 100 barrels a day. So if you stop that exploration drilling, which we’re seeing take place, in a year from now, you’ll start seeing the U.S. supply of energy declining rapidly, and then it snaps back to $70. And historically. oil bottoms between January and February, so we’re in a trough period.
We’re also in a rally period through the Chinese New Year. It’s a big, big consumption period that’s coming up for gold. Historically, gold has a big rally in January, so this is all very positive for us.
Robert Williams: Lastly, Frank, I’d like to ask you about gold. I know you believe everyone should have exposure to gold in their portfolios, but what’s the best way to do that?
Frank Holmes: We believe that gold should be 5% in bullion, 5% in gold stocks, and rebalance each year, and we just think it’s prudent. You know, the best-performing currency last year in the world was the U.S. dollar. What was second? Gold. Hard to believe that – it’s really hard for people. I try to tell them that, that money – gold is money, and – but this is just the math, looking at it. And gold stocks are now starting to show that rebound.
My favorites always… of these programs is the royalty companies. Do you know what Franco-Nevada did last year? Up 22%. Royal Gold up 36%. Silver Wheaton up 1.5% in the past 12 months. They’re just a better go-to, so we own them… funds. But when you have a mutual fund, you have to have a cluster. You have to have at least 30 stocks in a portfolio, and diversify. So you can’t have – you have all these diversification rules to comply with. And – but as an individual name – so there are people benefiting in this type of a market, and my job is to try to inspire curiosity to go find it.
Robert Williams: Well, as always, Frank, thanks for your time. Our readers can sign up for Frank’s e-letter FrankTalk right on the U.S. Global Investors homepage at www.USFunds.com. On behalf of Frank Holmes, I’m Robert Williams.
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