How much will health care expansion cost the government? Like everything else related to this soon-to-be-law bill, there is a deep and wide chasm between proponents and opponents. The White House estimates that the health care legislation will cost $950 billion over the 10-year period from 2010 and 2019, and the Congressional Budget Office (CBO) estimates that the bill will reduce the federal deficit by $143 billion during the same period. It’s hard to imagine the accounting that makes those two numbers compatible, as a former CBO director under President George W. Bush points out in a commentary in Sunday’s New York Times. Douglas Holtz-Eakin suggests that, based on his analysis, the health care legislation will actually add another $560 billion to an already massive federal budget deficit estimate by the CBO – nearly $10 trillion over 10 years. This figure is equivalent to more than 80 percent of current U.S. GDP. Huge deficits tend to weigh on the dollar, which stands to benefit gold equities. We discussed this in a commentary last year in which we used the charts below comparing gold stocks to the S&P 500.   The visuals, going back to 1971, show that when the federal government spends more than it takes in, gold stocks tend to outperform the broader market.  The federal budget deficits will likely lead to increasing worries about inflation and keep downward pressure on the dollar. If the cost of health care is higher than current estimates, the dollar stands to be weakened further. Either way, the potential remains for gold stocks to be attractive relative to the broader market for some time to come. By clicking on the link, you will be directed to New York Times website. U.S. Global Investors does not endorse all the information supplied by this website and is not responsible for its content. The Toronto Stock Exchange Gold and Precious Minerals Total Return Index is the total return version of the Toronto Stock Exchange Gold and Precious Minerals Index with dividends reinvested. The Toronto Stock Exchange Gold and Precious Minerals Index is a capitalization-weighted index designed to measure the performance of the gold and precious minerals sector of the TSX 300 Index. The S&P 500 Total Return Index is the total return version of the S&P 500 Stock Index with dividends reinvested. The S&P 500 Stock Index is a widely recognized capitalization-weighted index of 500 common stock prices in U.S. companies. #10-205

It’s getting to be common news for a Chinese company (usually with links to the government) to buy a foreign commodities producer to secure supplies of coal, oil, iron ore and other assets to fulfill the country’s ambitious growth plans. China is not alone on this shopping spree. We came across some new data, for example, that shows a clear trend of emerging-market countries increasing their ownership stakes of companies in the developed world. This is yet another indicator of the shifting balance in global wealth from the developed toward the emerging economies. China, the Middle East and India led a rebound in the number of emerging-market entities acquiring developed-world companies (E2D), according to KPMG’s Emerging Markets International Acquisition Tracker (EMIAT). EMIAT showed that 102 E2D transactions were completed in the second half of 2009, compared to 78 such deals in the first six months of the year. The chart above shows the trend for both E2D deals and developed-market companies buying assets in emerging nations (D2E), which have trailed off since the start of the Great Recession. A little more detail on the EMIAT: it covers 12 developed economies and 11 select emerging economies, and for a deal to count, the buyer must buy at least 10 percent of the overseas company. In 2009, Chinese companies made 50 acquisitions in the developed markets (which include Hong Kong), the highest number since EMIAT began in 2003. There were 86 deals going in the opposite direction, the lowest figure recorded by KPMG. China’s outbound deals last year included Sinopec’s purchase of Addax Petroleum for $7.3 billion, Yanzhou Coal’s $2.9 billion deal for Felix Resources and PetroChina’s outlay of $1.7 billion for a stake in Athabasca, the Canadian oil sands producer. PriceWaterhouseCoopers estimates that China’s overseas deals may grow 40 percent this year – already its national oil company is aiming to buy half of a major producer in Argentina for some $3 billion, and it has its eye on a number of other targets. For India, last year’s numbers were 25 and 73, respectively. India is the leading E2D dealmaker since 2003, with more than 400 completed transactions. Brazil was a laggard in this trend in 2009: just two E2D deals and 20 D2E deals. KPMG says it noticed an especially strong trend involving commodity and other resource-related acquisitions in the second half of 2009. It also predicted that oil-fueled Middle East sovereign wealth funds (Abu Dhabi’s alone is estimated at $600+ billion) will soon get busier.  Once this occurs, KPMG says, expect the spread between D2E and E2D to narrow dramatically. The major emerging markets are growing much faster than the developed markets.  Companies in these developing countries have used this leverage to build a stronger supply chain of natural resources that will allow them to maintain this brisk pace when the competition for scarce resources heats up. This is just one of the ways that China and other emerging markets are tilting the global economy so more of the world’s wealth flows their way. By clicking on the link, you will be directed to the KPMG website. U.S. Global Investors does not endorse all the information supplied by this website and is not responsible for its content. All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor. The following securities mentioned in this commentary were held by one or more of U.S. Global Investors’ clients as of 12-31-09: Yanzhou Coal Mining Co. Ltd., PetroChina Co. Ltd.

For the first time ever, emerging markets claimed three of the top four destinations for foreign direct investment (FDI) according to the 2010 A.T. Kearney Foreign Direct Investment Confidence Index. China (#1), India (#3) and Brazil (#4) were the headliners in a list of emerging market countries that claimed 19 out of the top 25 spots. China remains the top destination for FDI—a title it’s held since 2002—attracting $108.3 billion from around the world in 2008. Seventy-two percent of investors see the Asia-Pacific region leading the world out of recession. Thirty-two percent see a positive outlook for China and 31 percent said the same for India. Rounding out the top five is the United States, who regained the #2 slot from India and Germany at #5. Poland, the only European Union member to avoid negative GDP growth in 2009, made the biggest jump from 2007—going from #22 all the way to #6. Poland managed just over one percent GDP growth in 2009 and that figure is expected to double in 2010. Mexico jumped 11 spots to #8 and both Canada and Germany rose five spots up the FDI food chain. On the other hand, Hong Kong, Russia and Singapore suffered the biggest declines. Nearly half of Kearney’s survey respondents say they have postponed investments due to market uncertainty and credit difficulties. This means it may be some time before we see FDI levels near the $2 trillion mark they were at in 2007. For a detailed briefing on each country in the top 25, check out the BusinessWeek slideshow. View Slideshow of Top 25 Countries for Overseas Investment By clicking on the links, you will be directed to third-party websites. U.S. Global Investors does not endorse all the information supplied by these websites and is not responsible for their content. The Foreign Direct Investment Confidence Index is a regular survey of global executives conducted by A.T. Kearney. The Index provides a unique look at the present and future prospects for international investment flows.

There are 6.7 billion people living on the planet today, and the population is growing.  Growth in emerging markets and the shift of population to urban centers is creating greater demand for resources, services and infrastructure. The estimated needs for infrastructure spending are staggering—trillions of dollars across the world to develop water, energy, transportation and telecommunication infrastructure. How can you take advantage of these infrastructure investment opportunities?  I invite you to participate in this engaging webcast discussion with members of the portfolio management team for our infrastructure fund, the Global MegaTrends Fund. Also joining the webcast will be special guests from Macquarie North America, a firm that specializes in infrastructure advisory services. You don’t want to miss this opportunity. Register Now

It’s not a good time to be a developed economy. Sovereign debt is at or near the crisis point in Greece, Spain, Ireland and Portugal. It’s also a big issue and getting bigger in the United States, Britain, Japan and a number of other countries. Mohamed El-Erian, CEO at bond giant Pimco, was right when he wrote in Thursday’s Financial Times that sovereign debt represents “a significant regime shift in advanced economies with consequential and long-lasting effects.” Debt conditions are much better in the major emerging markets, as you can see in the chart below. In the G-20 largest developed economies, sovereign debt burdens are now at about 100 percent of GDP, while in the 20 most important emerging markets, debt represents only about 40 percent of GDP. In the next few years, the forecast sees the G-20 ratio rising another 20 percent. In the U.S., the ratio is already at its highest level since World War II, and another $10 trillion (70 percent of current GDP) will be added over the next decade. Meanwhile, the emerging 20’s sovereign debt-to-GDP actually goes down as a result of smaller budget deficits. The lighter debt load benefits emerging markets in a number of ways, particularly in how risks are measured and perceived. Sovereign credit ratings for emerging markets are improving, while the credit ratings of developed markets are dropping off significantly. This can be seen in the chart below—of course, developed markets still have higher ratings (left axis versus right axis) but the trend is for the key emerging markets is notably upward. Higher credit ratings mean lower costs of capital for these countries, which is a positive for economic growth in countries that are already growing faster than the developed markets. Now what about equity prices? Historically, there has been a negative correlation between bond prices and equity prices in developed markets, in what can be viewed as a safety trade. In emerging markets, however, we see a positive correlation between bond prices and equity prices in recent years. This makes sense to us, because both of these asset classes are driven by money flows from investors attracted by improving economic prospects in emerging countries. Emerging markets have had appeal for risk-tolerant investors because these economies are growing faster and their companies have generated higher returns. The sovereign debt issue is reducing the relative risk of investing in both bonds and equities in these dynamic markets—in this scenario, investors should consider the equities to capture the higher return.

What would you do if someone offered you $1 million for the right to drill for natural gas under your land? That’s the sort of Jed Clampitt scenario playing out in the piney woods of north Louisiana, under which lies the Haynesville Shale, perhaps the largest natural gas field in North America. What happens when cash-poor landowners hit the natural resources lottery is a theme in the documentary Haynesville, which make its North American premiere as the main feature at next week’s South by Southwest (SXSW) Film Festival in Austin. Along with the social aspects, the film also discusses the environmental and financial impacts that the Haynesville and similar shale deposits may have while supplying the U.S. with desirable clean energy in the decades ahead. Haynesville may contain as much as 250 trillion cubic feet of gas. The documentary pegs its regional economic impact at $1.75 trillion over its lifetime – as one person says in the film, “Now that’s a gas field!” Shale fields (notably the Barnett in north Texas, the Eagle Ford in south Texas, the Marcellus in eastern Pennsylvania and the Haynesville) now account for 20 percent of U.S. natural gas supply. A study released this week by energy consultancy IHS CERA sees cleaner-burning gas becoming more important for electric power generation – 19 billion cubic feet per day now becoming 35 billion cubic feet daily by 2035 as plants burning coal and other fuels are replaced. The documentary’s director said he tried to reflect the many facets of a modern-day gold rush tale. “What I had to do was walk a very fine line. It’s the line of not being preachy and not being pro-industry,” Gregory Kallenberg told the Houston Chronicle. “This is a piece that shows in a very balanced way where energy comes from and what effect it has on the people at the ground level. We all use energy, and using energy, it’s important to know how we get it.” You can watch the trailer for Haynesville at www.haynesvillemovie.com. By clicking on the link, you will be redirected to the Haynesville movie website. U.S. Global Investors does not endorse all the information supplied by this website and is not responsible for its content. #10-179

The private forecasting firm AccuWeather predicts an “extreme” Atlantic hurricane season in 2010, and if true, that could have a significant impact on energy prices this summer. In fact, AccuWeather says 2010 will be look a lot like 2008 in terms of hurricane activity. In 2008, there were 17 storms big enough to get a name – the biggest was Hurricane Ike, which killed nearly 200 people and did more than $6 billion in damage as it tore through Haiti and flattened Galveston Island, Texas.   By comparison, last year was the mellowest hurricane season since the late 1990s – only two storms reached land along the Gulf Coast. The Gulf Coast, of course, is an important energy region – it accounts for a quarter of U.S. oil production, 15 percent of domestic natural gas and 40 percent of the nation’s refining capacity. In 2008, dozens of offshore natural gas platforms were destroyed and production fell 98 percent during Ike – it took months to bring production back up. Many gas pipelines and processing plants were shut down altogether and others operated well below capacity. Oil prices spiked more than 15 percent and gasoline inventories slid to 40-year lows after refineries were halted due to lack of electricity. The prospect of a major hurricane season adds to other pressures on energy prices heading into the busy summer driving season. Gasoline prices in the U.S. are predicted to top $3 a gallon this summer, and that number came out before the hurricane forecast. The International Energy Agency (IEA) has raised its global oil demand forecast for 2010 as a result of strong economic activity in Asia – nearly half of the additional demand this year will be from China, IEA says. OPEC is also predicting a demand hike in 2010. In addition, demand has recovered to 2008 levels due to the improved economic conditions in North America, Europe and the former Soviet Union. We have often pointed out that the long-term oil supply response has been weak around the world, so if AccuWeather lives up to its name in 2010 (like it did last year), the short-term impact of reduced Gulf production and refining could be a significant price driver.

The Winter 2010 issue of our award-winning Shareholder Report magazine is called “Journey to India,” and it includes my observations from a recent research trip to this dynamic nation. This issue also highlights trends and developments for all of our key investment sectors at U.S. Global. We make the case for commodities as an important part of your portfolio, and we describe how the developing world’s growing middle class will put the squeeze on the supply of many precious resources. We also take a look at how gold outperformed other asset classes over the past decade and provide updates to what’s been going on in China. Click on the link below to see the online version of Shareholder Report. To get a hard copy, send an email with your mailing address to [email protected]. Download the Report

Yesterday afternoon I sat down with Aaron Task from Yahoo! Finance’s Tech Ticker to discuss my outlook for gold and oil. Despite a recent run-up in gold prices, I explained to Aaron that I am still bullish on gold. I think there are many compelling factors both from a supply side and from the demand side that looks like gold will trade higher…The only supply coming to the market is from central banks. Supply from mines is contracting as it’s getting more difficult, more expensive to produce an ounce of gold and deliver it to the marketplace. Watch the Discussion on Gold Aaron and I also discussed how each commodity has its own DNA of volatility and investors need to be mindful of that. Specifically, we discussed price volatility for oil. Based on historical patterns, oil could easily jump to $100 or fall twenty dollars to $60. That’d be normal volatility…It’s not just supply and demand around the world, it’s also because oil is priced in dollars and these swings in the dollar exaggerate the supply demand factors. Watch the Discussion on Oil Lastly, I explained to Aaron why the rise of a middle class in emerging markets is a catalyst for a long-term shift in consumption patterns for goods and services. What’s really significant is the rise of the middle class…What happens when you get 30 million out of 1.3 billion people making $50,000 a year? These big changes in consumption patterns take place. That’s why we’re seeing Cartier and Louis Vuitton and all these [luxury stores] opening up throughout China. Watch the Discussion on Emerging Markets Diversification does not protect an investor from market risks and does not assure a profit. The interview references the investment theory of an investment as insurance against a separate market event that could negatively affect performance of an investment. The reference does not guarantee performance or a safeguard from loss of principal by investing in that asset. Beta is a measure of the volatility, or systematic risk, of a security or a portfolio in comparison to the market as a whole. Holdings in the Global Resources Fund, Gold & Precious Metals Fund and World Precious Minerals Fund as a percentage of net assets as of December 31, 2009: Chevron (Global Resources Fund 3.69%), Conoco-Phillips 0.00%, Exxon 0.00%, San Juan Basin Royalty Trust 0.00%, Randgold Resources (Gold and Precious Metals Fund 8.30%, World Precious Minerals Fund 8.14%, Global Resources Fund 1.92%), Royal Gold (Gold and Precious Metals Fund 3.52%, World Precious Minerals Fund 1.14%), Franco Nevada (Gold and Precious Metals Fund 0.34%, World Precious Minerals Fund 0.16%, Global Resources Fund 0.04%), LVMH Moët Hennessy Louis Vuitton SA 0% #10-180

Asia’s rapid growth hogs the emerging-markets spotlight, but Russia and the other countries of Emerging Europe (EE) also deserve some attention. For starters, EE economies have tight fiscal policies and are carrying far less debt than many developed economies, both positives for sustained economic growth. In the chart above, the best place to be is in the southeast quadrant, and that’s where EE nations are clumped. Russia’s debt position is minimal and there is ample strength in the consumer sector going forward. In January 2010, wages were up 11 percent from a year ago to 19,000 rubles per month. This has kept domestic consumption levels around 65 percent—on par with Brazil and above both China (30 percent) and India (57 percent). In addition, Russia’s oil production—the country’s main profit center—came through the crisis more robust than many expected, even surpassing Saudi Arabia in terms of production. But Russia is looking beyond oil and gas. In February, Time magazine reported that President Dmitri Medvedev has ambitious plans to create a high-tech haven where geniuses can think up world-changing inventions. The intellectual capital is there. Despite years of exodus of scientists and engineers from the Soviet bloc during the 1990s, the chart above from Dr. Marc Faber shows the combined number of researchers in Russia and its former satellite states in Emerging Europe is not far behind the United States and China and is many times ahead of Brazil and India.

Dubai has created islands shaped like palm fronds, the world’s tallest building and even indoor snow skiing in the desert. Neighboring Abu Dhabi is taking the spirit of innovation even higher by building the world’s first carbon-neutral, zero-waste metropolis. The eco-friendly city of Masdar is scheduled to be completed in 2016. When finished, the city will have a working capacity of 110,000 people—50,000 residents and 60,000 commuters. The idea is to create an incubator for renewable energy and sustainable technology—a “Silicon Valley for clean, green and alternative energy.” There will be no cars, buses or other transportation reliant on fossil fuels. Energy to power the 6-square-kilometer city will come from a mixture of solar panels, wind turbines and the largest hydrogen power station in the world. All together, these will amount to about 130 megawatts of power, about 20 percent less than a conventional city of the same size, according to a report in ENI’s Oil magazine. Abu Dhabi’s government has already contributed $22 billion to the project and it hopes to attract investment from foreign governments and multinational firms as well. Last August, Masdar signed a deal with German chemical company BASF to provide construction materials, and just this week the head of the Abu Dhabi Future Energy Co. announced plans for a “Korean Cluster” within Masdar that will be home to South Korean companies, universities and facilities. Building a fossil-fuel-free city in Abu Dhabi, the world’s fifth largest oil and gas producer, may seem counterintuitive, but it makes a lot of sense. Masdar is a key part of the emirate’s long-term strategy to diversify its economy – that’s the same path Dubai started down several decades ago when it became clear that its oil wasn’t going to last forever. None of U.S. Global Investors family of funds held any of the securities mentioned in this article as of December 31, 2009. #10-150

From the latest edition of U.S. Global’s Weekly Investor Alert If there is any doubt about China’s role in the global growth story, the chart above should clear things up. Going back a decade, China has consistently been a major source of growth in infrastructure and other construction. The gap between the green line and the red line in the chart from Macquarie represents how much China has added to global construction. Ex-China, the year-over-year drop in world construction was nearly 30 percent at the 2009 bottom – since then, China has been the heavy lifter in getting the trend back into positive territory. This second chart also focuses on the China growth story, this time showing the breadth of wealth creation within its dynamic economy. It’s not a surprise to know that luxury products from Cartier, Gucci, Louis Vuitton and Hermes are available in Shanghai, Beijing, Guangzhou and Shenzhen, all key financial, political and manufacturing centers in the eastern part of the country. But the demand for these types of high-end goods extends deep to second- and third-tier cities in the Chinese hinterlands – as far west as Urumqi in the oil-producing Xinjiang region, south to industrial Kunming in Yunnan province and up to the trading center of Harbin in the northeast corner. The government in Beijing has been working to spread the nation’s economic prosperity westward, and if this is any indicator, it is having some success. To get more insights and perspective from the U.S. Global Investors investment team, subscribe to the Weekly Investor Alert. None of U.S. Global Investors family of funds held any of the securities mentioned in this article as of December 31, 2009.