US Global Investors Inc (GROW) 2010 Q2 法說會逐字稿

Welcome to the U.S. Global Investors exclusive webcast: U.S. Global Investors Earnings Announcement for the Second Quarter of Fiscal Year 2010. Please note that the slides you see on your screen are controlled by the presenters. Also, you may print a PDF of today's slides at any time by clicking on Download Presentation and the Resources section in the lower left corner of your screen. A question and answer session will follow today's presentation. (Operator Instructions).

We would like to begin by introducing Terry Badger, Director of Communications at U.S. Global Investors. Mr. Badger?

Thank you, operator, and welcome, everyone, to our webcast announcing results for the three months ended December 31, 2009. The presenters for today's program are Frank Holmes, U.S. Global Investors CEO and Chief Investment Officer; Susan McGee, President and General Counsel, and Catherine Rademacher, Chief Financial Officer.

During this webcast we may make forward-looking statements about our relative business outlook. Any forward-looking statements and all other statements made during this webcast that do not pertain to historical facts are subject to risks and uncertainties that may materially affect actual results. Please refer to our press release and corresponding Form 10-Q filing for more detail on factors that could cause actual results to differ materially from any described today in forward-looking statements. Any such statements are made as of today, and U.S. Global Investors accepts no obligation to update them in the future.

There will be a question and answer session as part of today's presentation. To submit a question during the webcast, which you may do at any time, just type your question in the dialog box at the bottom of the screen and click Submit. Now let's go to Frank Holmes, CEO and CIO, for a quick overview of the quarter. Frank?

Thank you. Now let's go to slide four, please. Some of the important parts that grow is debt-free and has a strong balance sheet. There is no talk of derivatives in our funds. We have a monthly dividend program, and I also would add there that we are focused where the growth is globally, emerging markets and resources. And later in the presentation, I will walk through why I think that is significant that we're in a super cycle and halfway through this great cycle in resources and with the buildout and the growth in emerging markets.

The next visuals of page five, Investment Leadership and Results and Performance. In the winners of 26 Lipper Fund awards and certificates for year 2000, the World Precious Minerals Fund is ranked number 1071, 34 to 51. It goes on because I think that last year we were able to demonstrate as the number one gold fund, we far outperformed the gold bullion ETF or the gold equity ETFs in this competitive space. And I think this is really important that our reputation is in this asset class. And I would like to now hop over to page six, a financial snapshot.

The year-over-year quarters, as you can see the revenue improved, the net income improved. Catherine later on will walk through in more detail how the markets of last year and the quarter impacted our portfolio investments and how that flowed through. But the bigger point is that on a cash flow basis month in, month out, the Company is much stronger, much better in a relative basis than it was during this crunch and against its peers. And the earnings-per-share, as you can see, improved from minus $0.11 to plus $0.10.

And then hopping over to slide number seven, sequential quarters, as you can see, the revenue grew, the net income grew, and same thing with earnings-per-share. And with that our culture is to have as low as G&A as possible and make everything in bonuses to be tied to the size of the funds and being in the top half. So, as the funds do perform well, there are bonus paid to investments, and so that is a very lean culture that is focused on what the shareholder is investing us for relative performance.

On page eight you can see the revenue, how the revenue expanded and the net income for six months also improved dramatically, and earnings-per-share had a big swing. And I think the dollar part, as Catherine will walk you through, where investment holdings added the volatility. And a large proxy when we had to compare over a year ago during that six-month period that impacted our overall cost structure, sort of a one-off expense.

Assets under management, they improved. Nothing compared to what they were in '07. That is pretty well across the industry. I think that the industry still will go through lots of contraction issues with the competition from ETFs because the general thought process is they are less expensive, but math is showing that they are not, and quite often, these ETFs and updates trigger premiums, in down days they trade at discounts underlying NAV, but this seems to be this general thought process that that is the hot sector to be in. And so we're going to stick to our knitting, and what we do is outperform them as active money managers, and I believe that over time performance is always the key value driver for assets under management. And it is not just one-off, being lucky one quarter one month or one year. It is a consistent dean in the top half that is so key. And when we take a look at our peers, you can see looking at the next visual is our assets were up 25%. Industry peers were up 39%. Much more impact and it appears a lot of that came from also bonds. Bonds had huge flows last year for many of the other -- for many of our peers, and that had an impact on assets under management.

Now we jumped down to visual number 11 is earnings. As you can see, our earnings improved 190%, net income earnings-per-share 191% and compared to our peers, and I'd just come back to an important fact is that our peers on average are close to 30% leveraged balance sheets. So in a rising asset class, just their basic fees will get a steroid shot because of the borrowing.

And that is fine with us because we don't want to have debts. We want to be able to be lean, have lots of cash on our balance sheet because we are in volatile asset classes. Just inherently it gets exaggerated because of swings in the dollar, but the growth in the emerging markets and the demand for commodities as these countries build up their infrastructure and the facts of globalization and the information highway globally, we just think coming back that we have a conservative balance sheet, then we can manage around this basically external volatility. So we are very happy with these relative results.

Return on equity, this is a key factor that we like to look at. As you can see, our returns for the year better than their peers, and our three-year average i better than the peers, even though we've had greater volatility. Greater volatility in emerging markets and resources are sort of modeled keeping our costs down. It helps this more attractive return on capital.

Leverage to financials, on page 13, is basically showing that we have no debt. Industry peers are approximately -- balance sheets are leveraged 29% and banks are 68%. And I'm a big believer that a lot of this financial crisis that we have lived through was because of overleveraged financial athletes. They are on steroids. And so it takes a while -- it will take based on history many years for these overleveraged entities to basically get their true mojo back in the capital markets and confidence.

But I think that when our position for where we're looking at emerging markets and resources that I think it is really important for investors to recognize that something like 94% of all cell phones are prepaid. Cars are predominately bought with cash, very low ratio of mortgages, very high savings rates for loans and banks and many of these emerging countries. So with that, we believe that going forward we still are very excited about the opportunities in that space.

And now I would like to turn it over to Terry to comment about the branding and to how we are positioning ourselves in the hearts and minds and eyes of the general public.

Okay. Thanks a lot, Frank. I appreciate that. Before I do that, though, I just learned that Dow Jones news may be reporting that we had a loss in the latest quarter. That obviously those of you who are listening to what we are saying now know that that is not correct. We are at $0.10 profit per share. Those of you who draw your news from Dow Jones, I just wanted to let you know that there may be an error in their reporting.

Now for the branding part, branding and education is a key part of our mission here. U.S. Global is based down in San Antonio, well away from where a lot of the conversations are taking place in the investing world. But that does not mean that we want to be left out of those conversations. And our branding and education focus is a way to be part of that broader conversation. Also, a chance for us to inform and interact with our existing investors and potential future investors as well. So it is a very important part of what we do here.

Our investment team travels extensively, and we're able to draw on the experiences on what they see on the ground, their meetings overseas, they are putting their own eyes on projects, talking to people on the ground there, and we really feel like we benefit from that, and we share that with a very receptive audience. As you can see, over on the right-hand side, a number of publications, very high-traffic websites are keenly interested in our content. They publish what we create, and it allows us to leverage that information that we are generating inside with the outside world as well.

The result of that has been a significant amount of recognition for what we do on the branding side. The Mutual Fund Education Alliance is the leading interest group, the leading trade group, for mutual fund communicators, and they have recognized what we have done with six awards at the most recent presentation that they had for our quarterly shareholder magazine, content that we have created on gold. And our weekly investor alert and advisor alert, which go out to an audience of nearly 40,000 people each week, people who are again taking advantage of what we are seeing on the inside.

On the right-hand side of that, we are also seeing that in our Web traffic. We spend a lot of focus on our Internet presence, and we are seeing that that is paying off here as well. We attribute that to a lot of our content, our efforts to be visible. And you can see here that our monthly unique visitors have gone up from about 12,000 at the beginning of '09 to nearly 47,000 at the peak and is now run around in that 35,000 to 40,000 range. So we're pretty happy with those results from the branding side.

And now I will turn it over to Susan McGee to talk about some significant events during the quarter.

Thank you. U.S. Global and fund trustees had previously agreed to contractual expense caps on our equity funds for a one-year period that ended September 30, 2009. At the beginning of the past quarter on October 1, we replaced those contractual expense caps with voluntary caps. On the equity fund, that was set roughly 25% higher than the previous contractual caps. The expense caps on our municipal bond and money market funds also became voluntary starting last quarter. Additionally for the past quarter, we implemented a performance fee structure for the nine equity funds. If an equity fund outperforms its benchmark by 5 or more percentage points over a rolling one-year period, the adviser will receive a 25 basis point performance fee. And conversely if a fund underperforms its benchmark by 5 or more percentage points, the advisor foregoes 25 basis points of his management fee.

Catherine will discuss the impact of the performance fees in greater detail when she presents the financials. But I would like to say the performance fees are consistent with our results-oriented culture here, and they better align the advisors' interests with those of the fund shareholders we believe.

Finally, an update on our efforts to broaden our exposure among institutional investors. We are happy with the success and the hard work our Institutional Services Group has yielded in bringing in assets. In calendar 2009 our assets under management from the institutional investors grew 76%, and the institutional games are very important because these investors tend to control larger pools of assets, and they tend to make their decisions based not only on performance but also on investment process and the quality of management. So we are very pleased with that progress.

And now we will go to Catherine for the financials.

Thanks, Susan. Good morning. I would like to go over our results of operations for the second quarter of fiscal 2010, which ended December 31. And beginning on page 17 with our revenues, we recorded a total of $9 million for the quarter. That is an increase of over 200% from the $2.8 million in revenues we reported last year. And to break down the main components of that increase, starting with the mutual fund advisory fees, we saw an increase of 79% to $5.3 million, largely because of increased assets under management during the quarter, especially in the natural resource and emerging markets sector.

And, as Susan mentioned, we did institute a performance fee for that quarter beginning October 1 based on the prior 12 month, rolling 12 month period. And we did pay out $397,000 in the quarter, however, in increasingly smaller amounts, and we are now in positive territory for the first two months of the current quarter. And we believe that was primarily due to increasing performance through the year earlier in the same period last year, our performance took a hit, and then it has been increasingly improving. So we see that as positive going forward.

Secondly, distribution and admin fees combined increased by $500,000, also due to higher assets under management.

And the third item I wanted to mention in revenues is investment income. That showed an increase of $3.3 million compared to same quarter last year. That is a result of comparing an unrealized gain of $300,000 this quarter to a $3 million loss in the prior year. The biggest portion of that $3 million loss was $2.5 million in the other than temporary impairments we took in December of '08. We have discussed that before, and I just wanted to mention that that was a one-time realized loss.

Expenses moving on to page 18, our total expenses for the quarter were approximately $6.7 million. That is a 26% increase over the $5.3 million in expenses we recorded in the same quarter last year. And several line items contributed to the increase, starting with employee compensation, which increased by $945,000 as a result of higher performance-based bonuses, as Frank mentioned, top half performance. G&A was essentially flat. Went down just a little bit. Platform fees increased by $594,000 because of higher assets under management.

And the third item I wanted to mention was advertising, which increased by $225,000 as a result of increased marketing activity. And somewhat offsetting these increases was a decline in subadvisory fees of $331,000. And that is primarily as a result of a change in the subadvisory contract in November of 2008 associated with the Eastern European funds.

And that brings us to net income on page 19 of $1.5 million or $0.10 per share compared to a loss of $1.7 million or $0.11 loss per share in the comparable quarter last year.

And I also wanted to note that this is the fifth quarter in a row in which both revenue and earnings per share have grown.

Also, just a short note on the year-to-date results. For the six months ended 12/31/09, we earned $0.19 versus a loss of $0.23 for the comparable period last year. And, as Frank and Susan mentioned, we had two significant events in the prior year.

In the first quarter of the comparable period last year, we had the merger of the trust, which in the long run will benefit the Company but did cost approximately $3.5 million. And in the second quarter, we had the other than temporary impairment that I mentioned. And, again, even excluding those two significant events, we still operationally have higher earnings per share for the same period.

Moving on to page 20, the balance sheet reflects our continuing high levels of cash relative to total assets. Combined with our marketable securities, the cash and cash equivalents total almost $30 million and constitute 76% of our total assets with working capital of over $28 million. And finally, as you can see on page 21 and as Frank mentioned, we still have no long-term debt.

And with that, I would like to turn it back over to Frank.

Thank you, Catherine. I would also like to comment that we've had support from well followed publications like Motley Fool's recommending growth and Weiss Research, and Weiss Research has also recommended several of our funds. And we find that that is really interesting that you had this overlap. They are big publications, and some covert funds only, some covert stocks, and we have been able to overlap them both.

And the other thing we find that is most interesting is that we are known so much for gold, that the biggest number of hits to our website, if you take a look at it, is for gold. The second is China, and the knowledge that we have on China in educating people on what the strengths and weaknesses are in China.

And then we are hopping over to page 22, the emerging middle class. I think it is so important that it's not just the demographics of the world changing in 1978 from 3 billion people to the year 2000, which I believe is the beginning of the super cycle in commodities. But I think also think it is really important to recognize the bank credit analyst research calling for super cycle in debt liquidation. And with that, you have both strengths and opportunities, and debt liquidation takes many, many years. It will take five years. It all depends on government policies. If they are hard-core socialists, then it will take longer to unwind the debt, and the classic example of that is Japan. It has taken over 20 years of dealing with this deflation with one policy after the other that has really never been able to get them out of the penalty box and fighting deflation.

But within that, there's these other events that take place where there's opportunities. And so we feel that these opportunities are very significant, and this is a visual I would like to use on page 23 is demographics is the key. It is not just the demographics; it is also the importance of having Deng Xiaoping at this inflection point in the year 1978 coming into power, and it was not a [Shabbos]. You can see a classic difference between two countries where we have made a lot of money for our shareholders is Colombia versus Venezuela has been a disaster. And the world was -- this is luck that you would get a dictator that came in and created a structure that said what is important is that there is social stability, and there is a means for people to have financial independence. And I think that was a key factor along with the breakthrough of this urbanization, this move to city centers. And China taking the lead of recognizing, because they would then send their best brains to American schools, that have been going back to China. And with that, they have been building out their economy.

Well, that is important because that leadership has allowed this huge job creation, and the world population has doubled. Right now it continues to grow in the city centers, and those cities that have not taken care of an infrastructure buildout have had great difficulty as in emerging markets in particular.

So what we like to point out is there are big sea changes taking place, and during this period from basically 1980 to the year 2000, was the big decline in resources. But there was a takeoff in the information highway and technology. And with government policies like you're seeing out of China now, India, I think if you put this magic together, you get these super cycle spread. And with the cycle that we are embracing is that it is going to have this volatility, and there is no doubt with the credit contraction and trying to expand on it.

But I think that what is important, as I mentioned earlier, is that the balance sheets of many of these countries is basically not impaired. People can borrow if that system is put together for them to be able to borrow. So there is much more upside in emerging markets. And this data continues to show strength, and the lack of investing from 1980 to 2000 in resources but the world's population doubled is very, very important as a backdrop.

The next visual we are showing you, the share in global nominal GDP, and this is basically showing the inflection point was 2006 where emerging markets surpassed the US, which is the biggest GDP in the world. And that is when the price of oil took off. And I think if that is important to recognize because I've just come back from traveling all over the world and it really is quite remarkable to see the consumption of energy, even when the gas is $6.00 to $7.00 a gallon. Not $2.70, not $3.00, not $2.50, but $6.00 and $7.00, the roads are packed.

Now in the backdrop of this population doubling, what is important is underneath that hood because the sheer size of these numbers is the rise of the middle class. And this middle class that is rising in many of these emerging countries are big numbers such as 300 million Chinese learning English. 300 -- you can easily get the population of Texas making the same GDP as Texas. And with that comes a whole pattern of consumption, which is still very different than what we experienced in America in the rise of the middle class. It is not about a holiday as much as it's about getting a new condo that has running hot and cold water and it's clean. It is about electricity and modern appliances, washing machines and dryers, etc. These are basic things that we take for granted that are very important in Brazil, in Russia, in China, in India.

And when you look at the sheer size of the numbers, what happens if there is 5 million more air conditioners in China and India being bought, how much copper will that consume? So this is for us in looking at this sort of analysis is that we think it is important to focus on the rise of middle class, and this was clearly, clearly demonstrated in the Slumdog Millionaire movie. This is Americanism. You too can be a millionaire. And what you saw at the beginning of this movie is two poor boys, and no matter what adversity, they always bounced on their feet and kept pushing and pursuing further, and at the very end is this photograph looking over what was their slum yards is now condos. And I have witnessed this in many years of traveling back and forth and seeing this growth.

Now recently I was in India, and I was just shocked to see the economic activity, and this is a picture from my BlackBerry on the highway from Jalandhar to Amritsar in Punjab. Punjab is a province or state that overlaps both India and Pakistan, and on the Indian side, it is dominated by the Sikhs. And this is very, very common, and you would see three people, sometimes five people on a motorcycle. And these vehicles all say underneath -- it is hard to read in this photograph -- going at 70 miles, but it says, "Honk your horn." And every vehicle is honking horns to make sure everyone is awake so that no one has to slam on the brakes because can you imagine what would happen to these people if someone slammed on the brakes. This is just a real common occurrence when you're traveling through these countries.

The next is a visual showing a wonderful company, BYD, Build Your Dream. The President is a person that Warren Buffett is quite enamored with, and Warren Buffett has a major investment in this particular company. He is the leading technologist. I think he has thousands and thousands of engineers in China working on the latest for battery-operated cars. It's been a big performer as a company in the past year.

But in addition to looking at this individual on the left-hand side, there is a huge pent-up demand for automotive transportation in the developing world. If you take a look at where America is, take a look where China and India are, and just think you're swinging from left to right. In China and India, affectionately known as Chindia, are 38% of the world's population. And they, too, want the American dream, and they, too, can see this on the Internet, they can see it on television.

And now what does this mean for oil and gas? Well, hop over to the next visual, and you can see that Brazil and Thailand, that as GDP per capita rises, that all of a sudden oil consumption in these countries rises. It is not as subject to the price of gas being under $3 a gallon. It does not seem to be a deterrent. It just seems to build up the demand. And this has shown up in many statistics as China turns the corner faster than the rest of the world last year in that leadership, but all of a sudden their demand for oil picked up dramatically, and that helped oil go from under $40 back to over $80.

So I think one has to really pay attention to what are the policies in these countries. And the next one is showing you infrastructure spending and oil demand, they marched together. And there is a strong correlation in recognizing these infrastructure approaches that take place, and we have seen it looking at gold stocks. If the price of oil rises faster than the price of gold is going up because 25% of the cost for gold mining companies is oil, it can impact their cash flow. So it is really to me important that investors look at all of these intermarket relationships to appreciate the different sectors and what the factors are that drive them.

The next visual is money supply. I mentioned many times the correlation of money supply to oil demand. Price action is something like 86% when they move in the same direction. And what you saw last year was a huge turn in money supply on a year-over-year basis for the euro and for America and also for China. We commented on this many times in our webcast. If you are not a subscriber to Investor Alert, I highly recommend you go to USfunds.com and do so that you can on a regular basis and a timely basis get these presentations that we produce.

But what you're seeing on this visual is that the supply of gold from mines is declining, but the money supply has been rising, and that has historically been a precursor for higher gold prices. And what is interesting for the past three weeks, money supply has actually been contracting in the US, it has been contracting in China, and we were noting this morning at our research meeting that money supply has turned up. So the past week in the US is now higher than the past month, and this usually puts support into the overall markets.

Now coming to this volatility, life, as Warren Buffett says, is all about managing expectations, and we have published on this before, anticipate before you participate. Understand what the role in volatility is. And so oil, the 12-month rolling volatility for oil of plus or minus 40% is just normal. And if you take a look at the Gold Stock Index of equities, it is plus or minus 42%. Now the S&P is basically close to a third of that, and bullion is even also less than that.

So it is important to recognize what that volatility is and how to not become spiteful and use it to your advantage. Right now from the peaks of many of the resources that took place in November, we are going through a correction. And it was just a normal process in this super cycle. And the same thing with GROW. And over any quarter, it is a non-event for GROW to go plus or minus 40%. So if it was $12, it can easily come down $4. It is normal volatility, and it is how do you manage that, and that is what we do under the hood is running our Company. And that's why we don't want to have debt. That's what we have an incentive structure that is based on performance so that we can turn around and manage our G&A with having to do layouts that we can turn around and participate in this sort of secular bull market in the resources and in the emerging markets.

So that ends the presentation, and I think it is for all investors to recognize that we are very happy how we have managed throughout this crisis, and we feel that this volatility you are seeing right now with the dollar being strong has a lot to do with the lack of confidence in the euro. The euro is having some serious issues because of Greece. If you look at the credit default swaps and then the breakout took place with Spain and Portugal, a lot of Spain and Portugal has to do with what took place in the UK buying real estate, and that is basically unwinding that trade. And then, as I have said earlier, it takes many years to unwind huge overleveraged balance sheets of both individuals and corporations, but it does not mean the market is not without opportunity. And one of the factors here is to be able to use this volatility to your benefit. And I believe Terry says he has a few questions for me that have been sent in.

Thanks, Frank, for that presentation. You're right we do have some questions, and we are open to some more if you want to send them in. To ask a question, just type it in the dialog box at the bottom of the screen and click Submit. I will start with the first question. It was covered a bit in the webcast, but I will let Catherine run it through again. How much cash is GROW sitting on, and how much debt is being carried? There is a second part of that question about share buybacks, and I will have Frank address that after Catherine.

Regarding the cash, we have built up and maintained a significant amount of cash relative to the size of our Company. We had about $22 million as of December 31, and we like to maintain that in order that we don't have to take on any debt, also to take advantage of any opportunities that may arise and to help weather any volatility storms, especially as we have seen in the last couple of days in the market.

As far as debt, we have absolutely no long-term debt. In fact, I think the last time we had any debt on the balance sheet was either in '04 or '05 when we paid off the building, and we have had none since then and don't intend to have any unless certain opportunities arise.

As far as the share buybacks, I know we have considered it before. Maybe Frank would like to address that.

One of the most important things we have seen in looking at stock pickers is the significance of dividends and yield. And if you take a look at the S&P last year and the real punishment it took with the dividend cuts, and we were trying to acquire an asset management company and with cash on the balance sheet, no issues, etc. But out of fear of what the market was doing a year ago, they cut their dividend. There was no reason to do it. They had positive cash flow. But out of that fear, immediately they lost a third of their assets. So dividends are a very, very important and basic component, and they also help manage that return on capital model that we are so focused on in generating a higher return on capital.

Now that applies to the value investor in this space. The growth investor is looking for that basic revenue per share, and when you buy back your stock, it does create an underlying support for the stock. And so we have considered looking at that. And if we did, it would basically be very similar to what we have done before in consulting the companies is to use an algorithm that basically uses volatility and that you buy X amount on a wide volatile down day and you just don't go out and buy for the sake of just buying. You use market volatility for the benefit of shareholders that are long-term investors in the fund -- or, sorry, in the Company. And I think that that is something that we will continue to consider in looking at how we manage our affairs.

Okay. Thanks, Frank. Frank, regarding ETFs, do you have any plans regarding ETFs in your long-term strategy?

You know, it is a great question because we have done a fair amount of research on this ETF space. And basically if you're not first out-of-the-box for a particular asset class with that story, then it is very difficult to get traction as a pool of assets. And two is that you have to have a distribution basically in place with the broker network that is out there in that marketplace.

So with that in mind, coming out there without a huge wholesale infrastructure that is in place, we have looked at acquiring companies. And so we've gone through that process where we would have that traction. But nothing has materialized. It is interesting that the whole process of looking at things, but I think the best part is that we don't want to impair our balance sheet, and we don't want to put the Company at risk as we look at this space. But I think a big part as we go down the road, we're going to see more transparency in this whole issue on this frothiness that I think is in ETFs. Because the volatility Bloomberg has a function that allows you every 15 seconds to look at the underlying holdings.

And what we noted is that on big up days, these underlying holdings trade a premium to what you're buying. That investor is not aware that they can be paying up to 300 to 700 basis points premium that day and vice versa on big down days like gold yesterday. Gold equity ETFs trade at a big discount to the underlying holdings valuation. And so investors are treading in and out and in and out of these things. Then they are leaving a lot more on the table when you compare it to an active managed fund. And two, we are very happy that in the space of what we compete against and those sectors that we far outperform those passive ETFs.

So that is what we want to take a look at. We must be able to get something that would make mathematical, be accretive to our balance sheet, be accretive to our income statement, and be accretive on a per share basis if we were to acquire someone in that space of the ETFs. And I think that is going to be our ammo as we go forward.

Okay. Thanks. And Frank, if you could put your foreign exchange hat on here for a second here. What would be the effect on gross earnings -- this is hypothetical here -- if the dollar weakened relative to the Chinese wan while strengthening versus the euro or the yen or other currencies? So dollar weakening compared to the wan while strengthening compared to the Western currencies.

You know, it is not going to have a significant impact day in, day out in trying to hedge every one of those parts out. The biggest impact is wanting to take a look at is, would it impact our resource fund, and how would it impact our Eastern European fund? Because those funds are -- and global resources -- world global resources and Eastern Europe are the three largest funds in our complex, and one has to turn around and model back to try to determine its impact. And I don't see off the top this being a real significant factor. A weaker dollar, which is interesting last year, is that a weaker dollar helped America dramatically even though the talking heads will tell you, oh no, it is really bad because we are able to export. And now we are seeing great GDP numbers of ISN numbers, etc., and it makes us so much more competitive versus the euro. And then we see that as the dollar strengthened this past month of January, guess what the market did? It fell.

So you have competitive currency devaluation around the world, and I think we're going to go in sort of sprints going back and forth between the currencies around the world as who devalues the currency faster over any six to nine-month period. And that will be the sprint, and then all of a sudden you will get another currency rallying. If the US dollar rallies too much, it will choke off exports, it will choke off job creation, and I think that this administration is very consumed with 8.5 million jobs have been lost in the past two years, of which close to 40% are construction-related. And so something has to take place there to stop this loss of jobs. And I think that will be an important part in trying to analyze besides the short-term volatility of currency A versus B.

Okay. Thank you and thank you everyone out there who did send any questions. This concludes U.S. Global Investors earnings webcast for the second quarter of fiscal year 2010. This presentation will be available for replay on our website at www.usfunds.com, and again, thank you all for your participation today.

Ladies and gentlemen, that does conclude the presentation for today. We thank you for your participation and ask that you please disconnect your lines.