US Global Investors Inc (GROW) 2012 Q1 法說會逐字稿

Welcome to US Global Investors webcast. US Global Investors earnings announcement for first quarter 2012. Please note that the slides you will see on your screen are controlled by the presenter. Also, you may print a PDF of today's slides at any time by clicking on the Download Presentation in the Resources section of the lower left corner of your screen. We would now like to begin by introducing Ryan George, Investor Relations at US Global Investors. Mr. George, you may begin.

Thank you. Welcome everyone to our webcast announcing results for quarter ended September 30, 2011. The presenters for today's program is Frank Holmes, US 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 don't 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 US Global Investors accepts no obligation to update them in the future.

If you have a question for us you can submit it at any time during the webcast. Simply type your question in the dial up box at the bottom of the screen and click Submit. If we are unable to answer your question during the live presentation, we will follow up with you individually Now let's go to Frank Holmes, CEO and CIO for an overview of the quarter. Frank?

Thank you, Ryan.

First and foremost, I'll share with all the investors that we're very satisfied with the results based on a relative basis to our procedure as and our performance on the Russell 2000 Emerging Markets Index and resources that our expertise and where we focus as money managers. The quarter experienced tremendous volatility and the only difference we can see fundamentally see is it showed up in our investment, because we do invest in our own funds and those funds had greater volatility and that impacts us on an income basis because it's non-cash charge and Catherine will go into a little more detail. But that volatility can help us on the upside when emerging markets resources are taking off or they go through this correction phases and I'll walk you through what we think of the strengths and weaknesses of this past quarter and compare it to other quarters and I just really feel excellent about where we are in this whole scheme of the market volatility and growth.

I'm really happy to announce that I have no idea how they picked that baby, but we have hit 7 billion people on planet Earth and we've been talking with this for many years that the world's population has doubled from the 1970s and that's what makes this cycle very, very different. But, however, people are so caught up with the short term nature of what's taken place in Greece and politics, we still feel very comfortable and we feel, as you can see in the visual, growth strengths as the go-to stocks for exposure in emerging markets and resources -- on a relative basis, we outperform these asset classes this first quarter, debt free strong balance sheet with reflexive cost structure, monthly dividend and return on equity discipline. They still remain the strengths.

As we go to the next visual, their top institutional holders based on the filings basically remain the same, and we thank them all for being loyal investors and believing in our vision and how we run our business, our business model. As I mentioned earlier it's a reflexive cost structure, as the assets decline so does our cost structure decline with it.

The next visual is giving you a snapshot how to grow due to the past year, and when we compare the Russell 2000 it's down 5.25%. The financial sector over the past 12 months is down even substantially more. And we're up 5%. So from that end, we feel that we have on a relative basis performed well.

When we take a look at the quarter, what you can see on the next visual in slide 7, looking at a very challenging quarter for all asset classes. We are off just like almost 6%. However, the Russell 2000, as you can see [inaudible] was off 22%. The commodities index was off 24%. Emerging markets were off 23%. So in the S&P was off 14%. So on a relative basis, we outperformed these other asset classes. And we're happy we're able to do that in relation to the uncertainties and short term and markets.

Let's go with the consistency of the next visual. It's now 52 months of paying $0.02 per month. Current yield 3.5% and this remains extremely attractive, higher than what a government ten year note is, higher than our peers, higher than indices that we're competing against in markets. And so we feel very, very comfortable with regard to our financial healthcast which I'll walk you through. And Catherine Rademacher our CFO will give more detail on.

But take a look at the assets, quarterly average assets under management, you can see they did decline the average and that's just a function of markets. And we are just happy that how we basically weathered through this. Earnings per share -- they declined, as you can see, from $0.05 on a year over year basis. The difference for this quarter is $0.03 to the downside and that's predominantly a -- it's not a loss where it's a real live loss. It's basically that swing, about $1 million, or $0.04 a share, that came from our investments in our funds. And vice versa, on a swing in market prices, this can easily rebound. And we saw a substantial lift in the month of October for many of these particular funds. So we're -- we believe that this is just a short term phenomenon and a long term cycle.

Now look at pretax margins, it does show up as it impacts our margins, their 15% profit margins -- our goal is to have a 25% profit margin. That's the industry average over the long periods of time. It's the average that you need to have, to be able to invest in technology and people and products, et cetera. So that's always our goal. We're sensitive over it and how we manage it.

The next visual is a balance sheet. As you can see, no debt. The cash is higher, all time high for the quarter. Investments, they slightly decline as we mentioned it impacted us. But our working capital, everything, is robust and healthy from that point of view. And unlike many corporations and governments, we're debt free and we own our own buildings, you'll see as a visual, the top of some of these slides. So on that end, we have a very low cost structure as we weather through this short term volatility.

The next visual is three reasons GROW is more attractive than peers. And it's amazing even with this past quarter with such short term challenging volatility, the growth on a 12 month trailing is still 41% versus the peers' 24% growth, when you look at earnings. And if you're a value investor, the three year average return on equity is still substantially higher than our peers. If you're looking for income our dividend yield is higher.

So we feel that we remain an attractive go-to stock for investors, looking at small cap and those are also focused on the emerging markets, growth of potential of long term vision and resources and need for many of these companies to build out. I'll come back after Catherine speaks and then Susan McGee will speak.

So I'd like to turn it over to Catherine Rademacher, our CFO.

Thank you, Frank. Good morning. Frank has touched on some of our financial highlights in the macro environment. And I would like to summarize our results on operations for the quarter ended September 30.

And beginning with revenues on page 15, we recorded total revenues of $7.8 million for the quarter, that is down $1.1 million or 12.7% from the $8.9 million we reported in the comparable quarter last year. And as Frank already mentioned, the lower revenue was primarily a result of investment losses of $552,000 this quarter compared to gains of $480,000 in the same quarter last year resulting in that $1 million swing he mentioned. That's about $0.04 per share. So most of that change from the prior year relates to unrealized losses in our trading securities, including the funds managed by the company as Frank mentioned. These unrealized losses were a result of volatility market and did not impact our cash flows and they will not do so until they're realized or sold.

And moving on to page 16, total expenses for the quarter were $6.6 million, that's a decrease of $332,000 or 4.8%. Most of the decline was in general and administrative expenses, and relate to prior period expenses relating to implementation of an investment management and trading software.

And next we can go to page 17, which shows net income for the quarter of $750,000 or $0.05 per share. That's a 41% decrease compared to the $0.08 earning per share reported in the comparable quarter last year.

Moving on to page 18. Again, as Frank mentioned earlier we have highest cash levels on record just over $28 million for our company, despite the volatility. Cash and securities combined make up about 82.5% of our total assets, compared to 80.2% for the same period last year. And we continue to have positive cash flows and maintain our monthly dividend discipline through this volatility.

And as you can see on page 19, again, no long term debt. Company has networking capital of $32.5 million and a strong current ratio of 8.3 to 1.

And with that, I would like to turn it over to Susan McGee, our president and general counsel.

Thank you, Catherine. Good morning.

I'd like to update you on several recent events for the Company. As average assets under management for US Global's mutual funds were relatively unchanged on a year over year basis for the quarter ended September 30. As Frank mentioned, roughly 80% of assets in our SEC registered funds are in emerging markets and natural resources related equity. And these experienced significant declines during the quarter. Frank will discuss why we believe this is only a short term disruption and a strong long term cycle for emerging markets and natural resources. Next I'd like to give you an update on the Company's sales and marketing activities. We have focused and expanded our national sales strategy in order to achieve greater traction with registered investment advisers. These advisers control an estimated $2 trillion in assets for their clients. This expansion includes adding Tadas Misiunas, a seasoned veteran, to our sales team, Tadas brings over 19 years of industry sales experience and has already proven himself as a valuable asset to our team. This week Frank, myself and several members of our sales team attended the Schwab Impact Conference in San Francisco, where Frank moderated a panel discussion on commodities. This is one of the largest gatherings of RIAs in the United States and a big opportunity to broaden our reach.

In addition, we recently had been participating in more conferences to present investment case for GROW. Frank will be speaking at the Citi Small and Mid-Cap Conference in Las Vegas in November 16. You can see from the slide that our calendar is quite full between now and the end of the year.

On the last slide would I like to congratulate our marketing investment team for winning seven STAR awards for excellence in investor education from the Mutual Fund Education Alliance. This year's success brings the firm's total to 28 educational awards won since 2007. One of our core company values is to be curious to learn and improve, and education plays a big role in our communications with shareholders. We are especially honored because the winners of these awards are selected by our industry peers from other highly regarded financial firms.

Now I would like to turn it back over to Frank who will lead you through the investment case for investing in emerging markets, gold, and natural resources. Frank?

Thank you, Susan. We have a whole team out at the Schwab conference. That's where Susan is calling in from. And it's quite amazing to see 4000 RIAs, trillions of dollars of investments and an opportunity to participate as Susan mentioned branding and having our institutional team out there and having Tadas join us. Tadas comes from Latvia, comes over as a young man to America at 16, learns English, goes to universities, go to university and do exceptionally well. All of that sort of tacit knowledge of Europe, Russia, Latvia, coupled with the American dream. All those parts add into what we believe is a super cycle and it's important for people to truly appreciate.

I've talked about the fear trade that dominates the press, the fear trade for equities as a whole and the fear trade for gold. And I've commented on the love trade for gold is very, very significant. But the other part I really hope to resonate with investors is the American dream trade -- and that's the positive trade for emerging markets.

Because the biggest fastest selling car in China and we were recently there at a board meeting in China is the Buick General Motors because the Chinese love America. You may not think so following New York media, but as whole, there seems to be a real difficulty with regard to appreciating how much the Chinese look towards America for its leadership and we can see that in all their products.

And with that, I'm going to jump over to appreciate these tipping points, melting points. Because money is very much like H2O and water goes -- is basically H2O, that's a liquid state. It goes from 32 degrees, a solid to liquid state, and then it goes to a gaseous state. It's still always H2O. Money's very similar and it goes through different stages.

It's important to appreciate when there's liquidity in the marketplace versus a hot air bubble and gas or everything's frozen and much of the world and Europe is basically below 32 degrees, and America seems to be thawing and we have much more liquidity. And I think you're seeing a slowing of economic activity. I've commented that are the S&P 1500 companies at the end of June, 700 plus were growing at 10% of revenue and recent numbers still validating the bulk of America is growing as public companies doing exceptional job in a very challenging environment, and a lot of that comes from exports. Exports from emerging markets that want the great American products.

So let's talk about flipping over to the visual -- seven billion people. We've commented on this before. It's important to recognize now the world recognizes that the importance of that, and that's what makes the 1970s different than today. Mostly emerging markets were under water in the 1970s, China and India, 40% of the world's population had no global footprint. Today it's growing. Even if it's slowing down the growth is incredible if you look at the demand for commodities and along with the government policies for infrastructure spending, embracing free markets to develop their economies. Even two weeks ago China announce what is we see as muni bonds as creating a muni security for cities to be able to do their own public debt funding. You know, it's emerging and embracing free markets in a very slow process, but it's evolving and that's very positive.

And we hop over and we get caught up with the government policy model which I believe is a precursor of change, wherever you go in the world. We try to simplify -- it's monetary and fiscal, it's interest rates and money supply, tax and spend with that money supply comes a deficit spending. So we like to compare all countries in the world, in particular, the next visual you'll see, is the E7 to G7 countries.

We like to compare because it's very important to grasp the simple concept that the G7 countries are 50% of the world's GDP but only 11% of the population, whereas the seven most populated countries in the world, the E7, they're almost 50% of the world's population, but 20% of GDP growth and growing, and growing at rates that are substantially greater than the G7 as the G7 wrestles with debt contraction. If Minsky is right, and looking back over the history of 400 years there's been 47 such country credit crisis, one every decade and this is the first time the G7 countries going through this drama. And with that, when one puts it in that context and asks well, how long will this volatility last, it's usually 16 quarters, four years. We have another year of this and we simply learn to live with it and use volatility to our benefit and every time there is a downdraft not to get frightened and use as an opportunity to acquire because the world's population has doubled from the 1970s and the rest of the world is embracing the American dream.

And next visual you can see that money supply, a key factor of economic development, you can see for the E7 countries remain strong at almost 18% and the G7 countries struggling along at 4%. That means the loans, that means there's economic activity in these other countries. What's also really interesting is that most of the countries in the E7/G7 are offering negative real interest rates. They're all battling on this thing with fear of inflation and deflation at the same time. But those factors giving you negative real interest rates is a sign that gold will be an attractive asset. And same thing with commodities, outside the fact that they're building up their infrastructure.

And that's something that's very important in all the research is reflected that. So you have to have interest rates over basically 2% over that country's inflationary rate. And America's inflationary rate is almost 4%. So we have to have 6% Treasury bills to make gold and these other asset classes unattractive. If we went to 6% short term interest rates we would have no economic activity. And the Treasury basically stated we have another year of this low interest rate environment and this bodes well for resources and along with following government policies.

And the next visual showing you debt levels of the emerging countries is substantially lower than what we have in the G7 countries. The next visual, skipping along here quickly for you is the page 31 is developing economies continue to lose share of the world GDP. What you're saying in yellow is emerging countries are capturing more and more of the global GDP. A big factor of this is lower debt levels, lower debt per person, most of Africa's on a cash trade business, I mention this had before that to recall that 94% of all cell phones emerging markets are prepaid every month. 90% of all cars in G7 countries have a note or borrowed against to buy that car whereas in emerging countries it's cash. So it's a very different economy and it continues to capture market share, and they continue the countries of the fastest growth have American can-do free market policies.

And the next visual is showing up is a China/India share GDP increases substantially. Go back to 1985, you can see it's 3%. And now you're pushing 18%. So I think it's very important to put that in could context that still it's 40% of the world's population, and what happens when China and India 40% of the world's GDP? What will that mean in the demand for commodities? The next visual is China and stay tuned because we're big believers in the supercycle and the S-curve, and China's basically where America was in the '60s. So in our race to put a man on the moon, that's where China is. So China has much further to go.

And the next visual is important because it shows the massive urbanization trend in India and China. When we took the train from Shanghai to Beijing, we could see nothing but condos being built for the rising middle class in the interior of China. And so we also are witnessing massive subway systems being built through all the cities, but major supercities in China and that creates a huge demand. And shows up in Caterpillar with spectacular results. Caterpillar is exporting its products. And Caterpillar, a year ago, did the first renminbi bond. They basically floated a bond in China in renminbi currency. And that's showing the globalization of what's taking place. So we think this urban amortization will continue and based on the math and projections, we have another ten years.

The next visual is showing you the tipping point. This is another visual it to look at the melting point when you get a transition period of population growth doubling or you have urbanization moving from rural areas to urbanization on the globe or a country, you create all of a sudden a new dimension of change, a new equilibrium. And that's what's important to recognize what's taking place and this is showing the trains. And what China did to basically start the economic buildup was to create tax free zones, to build sea ports, and then they built airports. And they became the biggest buyer of Boeing jets, which helped America create jobs and exporting jets over to China. And then after they built out airports and had new sea ports, they then went into building highways. Built highways and they couldn't keep up with how fast they built the highways and now control how many cars.

In fact, to you to buy a car today, friends of mine were at an auction in Shanghai and someone bought a car for $8,000 but to get the license to be able to drive the car cost $7,000 because they just cannot keep up with the road construction for the cars, but still that's the upper middle class and what's important is for the middle class and lower middle class to be able to move across the country to embrace this wonderful growth. So China's embarked on this substantial huge buildout of railways which is using a lot of metal and it's incredible to witness. We're still not at the halfway mark.

And what you see in the next visual that's a picture of myself against this incredible train that goes 180 miles an hour from Shanghai to Beijing. And this buildout is equivalent to what Eisenhower did in America of building out interstate highway systems. And when America did this in the 1950s, they consumed 55% of all the world's commodities. So what happens when China's now all of a sudden going to build 24,000 miles of light rail high speed trains that go 180 miles to 200 miles an hour? And how does America participate in that?

Well, immediately, Kentucky Fried Chicken, McDonald's, Pizza Hut, Starbucks, they're all positioning themselves along with all the major hoteliers to be over in China because they're going to connect 700 million people. It's just mind boggling and link 250 cities. And when you take a look at what happens to traffic and the budget is already in place to build this out. So I think this is going to be a brand-new change. And remember America never had Dairy Queen until we built Interstate highway systems.

What will be the new products and new developments when this super system is linked up throughout the country and within each of these cities these super cities are building subway systems. Shanghai has built, I have written about this, in the past 15 years, more than New York has in 100 years or the UK in London tubes. So with that is a thought process that this should consider huge demand for all these commodities and with that, everyone's talking about empty buildings everywhere in China and all the negativity. But the trains are packed, the train stations are packed and the subways are packed. So you're seeing an underground system and it's changing the country that has nothing to do with some empty buildings and being exaggerated across a nation.

What happens when you have this urbanization? Oil. Oil demand picks up. That's another key factor. When you see the next visual, G7 demand is falling with dealing with the debt crisis, however non-G7 oil demand continues to rise. The next visual shows that China and India alone, their share of global oil demand is 15%. Remember they are 40% of the world's population. And odds favor that oil price also remain firm.

One of the things along with seeing today copper prices remain strong because of supply restrictions. The largest copper operation, Indonesia, they're on strike, in Chile, they're on strike, in Peru -- so any type of supply restriction can take place and a net commodity like copper spikes. But oil is a chronic supply risk because we can see it from high risk countries. If you take a look a Russia is the largest crude producer in the world, however Russia's oil fields are declining. So their supply and their productivity of those fields are declining and it's just a tipping point of them being able to be the largest producers and exporters of oil.

And if you take look at the next visual over 40% of the global supply is under autocratic rule. And yes, Qaddafi is gone but who takes over? Because if you see the next visual, you can see every time there's been a crisis in one of these countries the wells get shut down, the temporary, they try to bring it back to the previous production but they never come back. Iran has never come back, Venezuela not come back, Libya has not come back, and Iraq not come back. See when you shut these wells down, it is not easy to turn a spigot on or a split like you flip a light switch on. You can't do this with wells with pumping oil on the ground. Average excess OPEC capacity, the capacity to be able to supply oil, that's not there like it used to be.

So it's another factor when the world's population, remember in the 1970s, there was 3 billion. We're now 7 billion. In the '70s, they were not bracing free markets the American dream. Today they are. This creates a huge difference and basically creates a floor for many of these commodity prices.

We go to the next visual and we can see the demand for gold and I commented that the fear trade gets most of it. I guess the publicity in all forms of media. But the love trade is to us more than 50% of the demand for gold. And it's very important to recognize the love trades because right now like Europe, the next visual is showing that fiscal 2010 government revenue and expenses, that's almost 60% of our fiscal deficit entitlements and we're seeing what's happening in Greece, in other countries that especially when you have unionized government workers it's very difficult for them to say we're going to cut back our entitlements. Many of these countries had huge problems going from 52 years of retirement to 54 -- not 65, but 52 to 54.

And there will be riots in the street. So one has to turn around and say how easy can we cut entitlements in America so what is the basic process for the governments, most likely they'll devalue the currency slowly over time. That creates the fear trade and that gets all the publicity. And we also have negative real interest rates so that's a key factor but really what's important is to look at this love trade.

And before we jump into that, the last thing I want to comment is not the political party, I so often hear it's the Democrats versus the Republicans that get into like a football match in the same state between two teams like we have in Texas between UT Austin and Texas A&M. This is not the issue. The issue is policies, economic political policies. And under Clinton, we had surplus budget, we also had real interest rates. That is, you were earning 2% above the inflationary rate and gold was at 250. Now we have deficit spending, we have negative real interest rates, and we have basically massive entitlement that's not going away. So that creates this drama for a fear trade.

And the other big difference between Clinton and Obama within that same political party is that under President Clinton taxes were raised but deregulation took place. And deregulations are non-linear. That is it throws up much more money into the economic engine. People forget that the telecommunication industry was deregulated. And it unleashed tremendous amounts of capital. At the same time the Internet was unleashed into the free market. And then cable was built around the world. We had huge economic growth, we had the creation of all these new Internet products et cetera they evolved very rapidly because of deregulation. And there was deregulation in the financial institutions -- the real difficulty with the whole deregulation took place in 2003 when they were allowed to leverage the balance sheets. Brokers were able to leverage balance sheets from 4 to 30 times. That led to the Lehman crisis.

So the big factor we take a look now in America versus a year our banks are in better shape. Our banks traded roughly 12 to 15 times on a leverage basis However, Europe is at 30 times. Lehman Brothers went bankrupt at 30 times. MF, that's now going under, is leveraged 40 times. So basically none of the financial institutions always run the difficulty when they're leveraged. We went back to Enron and we looked at WorldCom. These companies that went bankrupt. They were also highly leveraged balance sheets.

So in the contrast, US Global has no debt. US Global has lots of cash on its balance sheet and we feel very, very comfortable in dealing with these factors.

But let's hop over to the next one. I'm always asked what return gold negative and would I say if you earn 2% based on the study going back to 1971 and basically it shows you that if rates are minussed, if you have negative real interest rates versus positive real interest rates and what happens to commodity prices. So we would have to have 6% interest rates in order to knock all commodities in particular gold out of favor. We don't see that happening.

Now the love trade, one of my most favorite trades, like the American dream trade in emerging markets. And what you see in the bulk of the world, the majority of the population is a cultural affinity for giving gold to the ones they love -- for birthdays, for weddings for religious holidays, if you're born in the year of the rabbit, then you got a gold rabbit, 24 karat gold rabbit this year in Asia. Next year is the year of dragon, and they expect gold sales to be even greater.

So it's important to recognize the big factor that driving that is rising incomes. And incomes are rising in much of emerging markets not because of a leveraged economy but because of just cash activity. And that bodes well. And holidays drive gold demand as you can see. Gold started earlier this year. And what we have seen is whatever you have a religious holiday or a right now the -- we have an India the season of lights going into a wedding season, the season of Diwali, in the season of lights, when that occur a year ago and QE2 being announced at the same time, gold hit new all time levels. Then earlier in August when we had the debt crisis in Europe coupled with the debt debate in America you had the beginning of Ramadan. That is a huge demand of buying gold. So you have the love trade and the fear trade show up at the same time. Every time this has happened, we get a new high in gold.

And then gold corrects and it's nothing for gold to go up plus or minus 15% or over any 12 month period for the past ten years. And what we've been seeing is these runs up 30% over 12 months correct 15%, roughly back up to 20% growth rates then correct 8%. So you have higher rising markets and then corrections. And every time there's a correction, everyone says it's over. But we don't think it's over because of the addition that this love trade is still in place. And the next visual sort of substantiates this thought process and our assumptions of this love trade at the strong core relationship between rising incomes in China and India when you look at GDP per capita and the price of gold.

There's no gold bubble. You need leverage -- most of the gold bubble took place in the 1980s when the futures market was leveraged 10 to 1. And there was an exponential move, you can see on this chart. There is no exponential move in gold. It's been much more gradual but you did get exponential move in NASDAQ in 2000 and gold in 1980.

And hopping over to as we finish this presentation, gold is undervalued compared to rise in other areas of the economy. If you go back and look at U.S. debt since 1980, it's up 17 times. the S&P up 11 times, and U.S. economy up almost 6 times since 1980. And gold prices average around $700 an ounce in 1980 and they're only up 2.5 times.

Where does that bode? If you believe in mean reversion, gold could double the cut of the U.S. GDP. I don't think it's going to go up 17 times in the debt levels but it has more upside than it has downside on a long term mean reversion model, if that is the way you look at these markets. And we believe it's important to look at the significance of the ratio of debt to the GDP to gold.

The next visual to give you an idea when gold was basically freed in August 15, 1971, what has been the purchasing power of the dollar? And it's basically fallen 82%. And when you take a look at the continuous deficit spending, the difficulty of cutting fiscal spending to align itself and negative real interest rates, it looks like the currency over time will devalue. The positive part of the currency devaluing is that American exports are going up and it's helping job activity for high end products for America. There's no doubt we see that when we look at the S&P. The negative part is your purchasing power is declining and that impacts the cost for oil and the cost for other products.

So I end the presentation with gold needs to be much higher to cover the US money supply and you can see that it could go to $8000 or $3600 as other gold -- real gold gurus I call them that follow nothing but gold and compared to gold is just money, not as the love trade, just as a fear trade is their mantra -- their model suggests gold could trade much, much higher.

And the next one is gold stocks. That's what we predominantly manage. And gold stocks have been lagging. They have been sold down with equities. They seem to be every time there's a financial fear like we saw ING Bank fall 25% in the last couple of weeks over fears in Europe, which is the biggest bank in the world or was, you see that all stocks seem to get sold and gold stocks sold with them. But gold stocks now have way, way undervalued and they're coming up with record earnings in cash flow and they are only increasing their dividends 25% to 35%. And what's amazing is the contraction relative to valuation is that gold stock prices were back to where they were in 2008. And the gold prices substantially higher so these companies are making buckets of money and I think you're going to see rising dividends with them.

And what we're also seeing are takeovers. And these takeovers in 2007 were at very small premiums on their metrics to gold in the ground and today there's 60% and 80% premiums. The recent one was over 100% premium to the current stock prices. That basically says these stocks have fallen so greatly relative to the commodity and cash flow or the valuations that other companies are just gobbling them up. And we think this is going to take place. Just south of San Antonio, BHP came in and basically increased the valuation of an oil company by $7 billion for a total of $15 billion takeover and that was a 60% premium to the current stock price.

So that just is another reflection it's not just gold. It's all resources are trading at substantial discounts to their NAVs. Anticipate for your participate -- what I try to show investors here is measure in volatility. And we look at it differently and we want to let investors know GROW a number of times has gone plus or minus 10%. As you can see, it's risen plus 10% more than it's fallen. This is over a 20 day trading period. This is a very short monthly trading volume, but it is 52% of the time GROW as a public company can jump 10% or fall 10% over 20 trading days.

And how does that compare? Well, if you take a look at gold bucks index it's plus or minus or 33% of the time it can go plus or minus 10%, oil is 30% of the time we can go plus or minus 10%. Emerging markets is a lot less. It's 12% of time plus or minus 10%. Bullion is 7% S&P is 6%. But come back to the earlier visual, 80% of our assets are emerging markets and resource related. So our asset levels are volatile inherently just because of currency swings and economic growth.

We can get double amplitude if an economy like Korea is booming and the dollar is weak, it has double the amplitude on the upside. Vice versa, it can correct in the downside. This increases the volatility of the asset base and we make our revenue from the assets. So that's the key factor here to recognize what increase -- what makes GROW so volatile and relative basis are the assets.

But we feel very comfortable because we have a low cost structure and most of the compensation here is based on performance. And that's the biggest thing that I think about if I can't sleep at night it's because of fund performance, because fund performance drives assets, and assets drive revenue and revenue drives the growth from the company and that's what we're focused on. We continue to look for acquisitions. They have to be accretive. And hoping this last little correction here that we can find something that will meet where we think the opportunities are for growing but we're not going to do just do a deal for the sake of bulking up and growing. It has to be accretive to shareholders and that's what we think is key.

And we like this last visual -- trying to stop a bull market has its risks, take care and please come visit us and sign up for the Frank Talk investor alert. It was really profound happy to find out that the investor alert is now into over 200 countries and sometimes the stories have gone out to 30 million readers globally. So the brand continues to grow all over the world and we have to be very respectful of that, and make sure that we're always having a high quality educational product that's informative and timely, interesting and creates that curiosity of looking at global investments and emerging markets.

Thank you very much. Q&A.

Thank you, Frank.

Now we'll take some questions. To ask a question please type the question in the dialogue box in the screen and click Submit.

One of the first questions we have is regarding the recovery that we've had in the past several weeks. What do you see as the key driver of global markets for the rest of the year?

I see the importance of government policies in the emerging markets. And what we're seeing is that they have been trying to slow down inflation in India and in China and with the countries such as that -- those in Turkey, et cetera, they're now dropping interest rates and particular China's revisiting how they're trying to slow down their economy. They've done a good job of trying to contain that inflation. There's been -- we're seeing that in many other countries. So we think we're going to start seeing over the next 12 months emerging markets take the leadership in dropping the rates to spur their economic activity.

I think the other factor is I think America will be able to get through this whole process. I think Europe will still be in this drama and the negative is going to always be financials. And we've done this difficult sort of quant analysis that almost every major down day is led by financials. So something negative about the banks and the attack on the banks by regulators by governments in Europe in particular seems to be an ongoing -- they have an extra tax on banks. All they're doing is basically freezing up and making them the Darth Vader of the world. But if you do not have good banking, you do not have a good economy.

And so with that we have to recognize that there is strong economic growth in Africa, there's strong economic growth in much of Latin America, in much of Asia, and I think that that will continue. And the short term down spikes in -- was it Greece one day, or it will be Portugal next quarter. I don't know. But I do know that over 400 years of research, this is what you have to expect. You're in the fourth year. And my suggestion is to try to use that volatility that whenever you have these down drafts of 10% or more, that you look to add to your investments and vice versa when you have these massive surges.

We wrote about this in early October that the decline was so severe, everything was so negative. And the market went through the second biggest rally since World War II. And the last time it went through such a big one month rally was in 1974. That was after a huge recession. That was after we had several major political issues. We had financial institutions going bankrupt. We had political turmoil internally. We had the creation of the EPA. All these factors took place during this period, and so you had tremendous volatility.

The other thing that investors should be aware of is that as long as the S&P is below its 200-day moving average, research has shown they're just more volatile. And so with that, you have to look at volatility as if you're [bored] against your investments then you're at risk. If you're not [bored] against your investments then volatility can be an enhancement to your overall portfolio.

Thank you, Frank.

That looks like that's all the questions we have for today. Thank you all for your participation in the webcast. This concludes US Global Investors earnings webcast for the first quarter 2012. This presentation will be available for replay at our website at usfunds.com. Thank you.