US Global Investors Inc (GROW) 2012 Q2 法說會逐字稿

Welcome to the U.S. Global Investors webcast is U.S. Global Investors earnings announcement for the second quarter 2012. 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 the download presentation in the resource section in the left corner of your screen. We would like to begin by introducing Ryan George, Investor Relations at U.S. Global Investors. Mr. George?

Thank you, everyone, to our webcast announcing results for the quarter ended December 31, 2011. 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 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 and 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.

If you question for you can submit it at any time during the webcast. Simply type your question to the dialog box at bottom of your screen, and click submit. If we are not able 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. Thank you, everyone, for participating in this morning's meeting. Let's hop over to slide number 4, the strengths. GROW, I'm going to show you, continues to be the go-to stock for exposure in emerging markets and resources. We are debt free. We have a strong balance sheet with a reflexive cost structure. That's what's going to be important in walking you through how we've had to manage through this volatility, especially gold. Gold fell 10% in one month, and I'll show you that this happens only 7% of the time and put in a position for a big rally that's taken place in January. But that, in December, was a big challenge for us. But the difference is, when we got back to look at 2008 compared to how we did in this past quarter on average assets that are comparable, we did substantially better as a Company even with many headwinds and challenges. And a big part of that is having a reflexive cost structure. And then monthly dividends returned on equity discipline are important to how we think about the markets.

Let's hop over to the next visual, is the Royce Funds according to financials, are still our major shareholder, and then we have Financial Investment Management, Perritt Capital Management, Sunamerica Asset Management and BlackRock Fund Advisors.

The next visual is showing you our long-term performance. It does show you this tremendous volatility. We are still very proud that over the 10-year annualized return, it has been 29%. And it appears to be a non-event for us to have tremendous peaks and valleys.

The next visual is highlighting the challenges that took place in 2011, was the worst year since 1998 for active managers. This is the year, in 1998, when Russia imploded and we had long-term capital imploding and had a rippling effect of markets. One of the big parts that comes out was the behavior of the finance experts suggests that investors -- cognitive biases are the primary explanation for it, this underperformance. And as you can see, that almost 50% of fund managers underperform their benchmarks by more than 250 basis points. That volatility, we have noticed, has accelerated in the second half of each year and it's something that we have to think about as we go forward as active money managers. But what's important is it's just difficult when that volatility accelerates for investors to assimilate the information, to be able to move on a dime to good news or bad news. And I think that's a factor for this poor management.

And further to that is the redemptions. As the redemptions start to accelerate, it makes it very difficult as a money manager to make decisions to what stocks to be selling. That process is very different than playing OFETs. If you have stable money flows or you have positive money flows, that decision-making model is extremely different. At what we saw last year was substantial redemptions and I think it was the third-most challenging period in the fund industry.

So it's natural for everyone everywhere to have peaks and valleys at work and in life. And philosophically, peaks and valleys are not just the good and bad times that happen to us, they are also how we feel inside and respond to those outside events. And these peaks and valleys are connected. And what we hope is that we become wiser with each one of these corrections and how to deal with these challenging times so that we can have a better upmarket and a surge. And we do feel that we have been able to do that through this cycle.

Now, going over the next visual is page 8. As you can see here, it's so simple that it's the 80/20 rule. 80% of our asset base deals with emerging markets and resources. And they are also highly connected. This is where the growth is for the next 10 years. This is where the debt levels are lower. This is where we are focusing on.

However, when you get these risk-on, risk-off trades and you get uncertainty in the G7 countries over debt ceilings and fiscal debates, etc., emerging markets start to take it on the chin. And what we did see last year is that emerging markets were very quick to be right -- lifting interest rates, trying to slow down inflation, in particular food inflation. We saw some of the countries like China lift interest rates six times and lift their reserve ratios. And as soon as that money supply started to contract, I will show you in the presentation they have turned it on. They turned it on in November and December. So it appears that they have dropped the reserve ratio, same thing in India. Brazil has dropped interest rates. So it appears this risk-on trade is now being put in place, and we are starting to see a rally.

The other thing that's important is asset and distribution channels. We have still a strong retail direct following. The retail seems to be -- comes in waves, but the institutional at the same time last year came in, in big chunks and then left. As soon as it became worried, especially in May and August of last year, two particular months, but August with the whole debt problem, you saw that a lot of them averages fell below their 50-day. And there are many, many of these RIAs out there that follow a 50-day and a 200-day moving average.

On a positive note, it looks like we have there what's called the golden cross, where the 50 days going across the above the 200-day, and we have published on this over the past 20 years, seldom do you get a 50-day going above the 200-day or below. And last summer it went below, and this triggered a tremendous amount of just redemptions and selling. It now appears we are going to get that reversal. That would be very positive for the capital markets.

The next visual I like -- it's managing expectations, and this is the math. As you can see, gold stocks -- and it's just a normal volatility, it's 68% of the time or approximately 70% of the time, it's a nonevent for these asset classes to go plus or minus 38%, for oil plus or minus 35%, in emerging markets plus or minus 30%. And that's where the bulk of our assets are. And so when they start to take it on the chin, we have a very reflexive cost structure to be able to cut back in our cost as these markets go through a correction.

The next visual is on page 10, is showing you how often markets have moved plus or minus 10%, and this is showing you over a month, over a monthly basis, that's 20 trading days. And it's very seldom does gold jump 10% in a month or fall 10% in a month. And December was one of those challenging points when it fell.

The next visual is showing you that gross relative performance. As you can see, I thought on a relative basis during one of the most horrific times, we did much better as a company relative to emerging markets to the Junior Mining Gold Index and the Venture Index and to the Global Natural Resource Indexes.

The next visual is showing you that in January, as it appears that the money flows are rising again and there is more confidence in the marketplace with emerging markets dropping interest rates, that commodities are starting to rise again and -- along with emerging markets. And you can see so is GROW in that sort of flow. And that's what is important to us, is that we are that go-to stock for people that do not want to go invest in overseas and they want to -- and they don't buy mutual funds, they buy stocks. And we are a way to play that space.

Dividends we paid monthly, consistent 55 months. Even during the worst times of 2008 when we lost money and quickly surged back, we still maintained our capacity and our ability to pay. And one of those big parts is we have no debt and we have a very, very robust cash position on our balance sheet.

The next visual is showing you assets. As you can see, in that slow decline, that impacted because it's a high correlation to our overall asset level. The other thing in assets, years ago we diversified in our -- because we understood the volatility -- the money market funds. In the early 1990s when I purchased the control of US Global, I just noticed that the most stable asset class were money funds. And we did a very specific marketing strategy to build up that because it was stable.

However, now money market funds are coming under tremendous pressure because there's no fees to be charging and it's cost us money to have them. We have made a statement to keep them because, once you lose that client and they go off to a banker or a broker, etc., it's very hard to get that customer back. And we are seeing, with Facebook going public, what is the value of that customer and the importance of maintaining that customer in that relationship. So now we end up looking at our money market funds as being almost like a marketing cost structure to maintain them. Hopefully, repos in this past week have a bit of a rally here. And that would be helpful.

Earnings, as you can see -- here's earnings and the volatility of earnings that is taking place. I'm sorry that this visual doesn't include 2008 for you to show you that as the asset levels and markets fell, we did substantially better than -- in the fourth quarter of 2008 and the first quarter of 2009.

Pretax margins -- naturally, they are coming under pressure. There's a lag in some of our costs which we pay the platforms for the accounts as funds have redeemed, that lagging period seems to catch up. So we will get those benefits coming into this quarter. But still is that we did slash and some things are done just reflexively, costs compared to what took place in 2008.

Balance sheet -- as you can see, I'm very happy. No debt; strong, strong position. And we own our own building. That's a key factor. The cost of owning our own building at the busiest intersection in San Antonio for car traffic and having the ability -- it's a great asset and the cost structure is substantially less than leasing expensive real estate and being subject to having to pay landlords or if you had to borrow from a bank and you have to make -- we don't have any of that aggravation. Our job is to stay close to the knitting and picking stocks and traveling around the world to look for greater opportunities.

Page 18, three reasons GROW is more attractive than peers. And it's important, the three-year numbers is the way we like to manage ourselves. I'm just happy to see that the returns on capital are -- as you can see here, we have such a low cost base that on any substantial rally in asset flows we are able to generate high returns on capital. Our dividend is higher than our peers'; it's double. And as you can also see, the growth in earnings per share, even though more companies have been coming out this quarter and it will probably change this ratio because we have -- our computation. But I still think that the leverage for us on the upside is tremendous.

Now I'm going to turn it over to the brains. I have two people who are very important in the presentation, Catherine Rademacher, our CFO; and Susan McGee, our President and General Counsel. And so they are going to take over comments, and I will come back for what we like to call our state of the union, both global economic opportunities and threats. Catherine?

Okay, thank you, Frank. Good morning. I would like to summarize our results of operations for the quarter ended December 31. Beginning with revenues on page 20, we reported total revenues of $5.9 million for the quarter. That's down 50.6% from the $11.9 million we reported in the comparable quarter last year, primarily for the following reasons. First, mutual fund management fees decreased $1.9 million, which was attributable to lower assets under management that Frank discussed. Average assets under management for the quarter were $2.08 million, down 27% from $2.85 million in the same quarter last year, primarily due to shareholder redemptions in the natural resources and emerging market funds.

Secondly, mutual fund performance fees declined $1.8 million. This was attributable to a swing in the performance fee adjustments from positive in the comparable quarter last year to negative this quarter. Other advisory fees decreased by $910,000, primarily as a result of a decrease in offshore fund performance fees due to market depreciation of the natural resources-related holding. Distribution fees and admin fees each declined by more than 30% due to lower assets under management, and transfer agent fees also decreased by 28.5% as a result of a decline in shareholder accounts and the number of transactions.

Moving on to page 21, as Frank mentioned, with this volatility we have a fairly reflexive cost structure with relatively low fixed cost. So total expenses for the quarter were $5.2 million. That's a decrease of $3.05 million or 37%, primarily for the following reasons. Employee compensation and benefits decreased by $1.4 million or 35.6% as a result of lower performance-based bonuses. General and administrative expenses decreased by $926,000 or 41% due to lower consulting, marketing and conference fees. And finally, platform fees decreased by $538,000 or 35% as a result of lower assets under management.

Next, on page 22, shows net income for the quarter of $409,000 or $0.03 per share, an 82% decrease compared to the $0.15 earnings per share reported in the comparable quarter last year.

On page 23, we still have, as Frank mentioned, near record-high levels of cash. Cash and securities combined make up over 82% of our total assets compared with 77% for the same period last year. And as you can see on page 24, to reiterate what Frank said earlier, we still have no long-term debt. We own the building. The Company has net working capital of $32 million and a current ratio of 8.9 to 1.

With that, I would like to turn over to Susan McGee, our President and General Counsel.

Thank you, Catherine, good morning. I would like to highlight for you some key points this morning. One of our values here at US Global is to be performance and results oriented. Since 2000, six of our 13 funds have received a total of 29 accolades from Lipper. This is a testament to the performance results our funds have posted over the past decade. The long-term performance of several of our funds was recently recognized by major publications, Barron's and the Wall Street Journal. Three of our emerging markets in natural resources-oriented funds ranked among the top 20 funds in the entire mutual fund and exchange-traded fund universe for the ten-year period as of December 31, 2011, according to the Wall Street Journal's latest mutual funds quarter report. Two funds ranked in the top 10, the World Precious Minerals Fund and the Gold and Precious Metals Fund, ranking fifth and seventh, respectively, and the Global Resources Fund ranked 16th.

Moving to the next slide, our U.S. Global Investors portfolio management team continue to be sought out by national media for their thought leadership and insight on natural resources and emerging markets. Frank and the team conducted over 200 interviews and appeared on national television nearly 60 times during the 2011 calendar year. In addition, the funds were recommended over 600 times by financial newsletter writers.

The growing influence of Frank's blog, Frank Talk, is also worth noting. The blog had over 200 updates in 2011 and attracted roughly 10,000 readers each week. The Frank Talk blog is also -- the blog is also mass-syndicated to 58 partner content sites that have a combined monthly reach of approximately 25 million visitors. The proliferation of the blog and the high volume of interviews has led the Company to nearly 7000 online mentions during the year. Since 2006, our average number of online mentions per month has increased by more than 300%.

Lastly, I would like to give you an update on the Company's sales and marketing activities. This week, members of our team are attending the national TD Ameritrade conference in Orlando, Florida. Next week, Frank will be speaking at a Cambridge House event in California and meeting with some key RIAs in the area. Frank will also be appearing on a panel at the Bloomberg portfolio manager mash-up later in the month in New York. You can see from this slide that our calendar is quite full between now and the end of the quarter.

Now I would like to turn it back over to Frank, who will lead us through our analysis of why global markets are poised for a rebound in 2012.

Thank you, Susan. West Coast Asset Management wrote a book recently reading on entrepreneurial investing. I thought it was interesting in some of their comments that style boxes are arbitrarily limit opportunity. And there's a pattern we are seeing as active money managers to have more flexibility to go anywhere to make money, rather than getting pushed into a style box.

However, small caps in a risk-on/risk-off scenario last year take it on the chin whereas, in a rising market where risk is being accepted and you're seeing interest rates falling, that all of a sudden small-cap stocks have outperformed. At US global, I agree with them; we are entrepreneurial investors and we are focused on being opportunistic for our portfolios and having a personal involvement and a personal commitment because 50% of the bonuses that the portfolio team received go into the funds.

And the other part I thought was interesting is entrepreneurs excel at proving the conventional wisdom wrong. We won many educational market awards for explaining why gold would rise to $1000 and then beyond, defying what was conventional wisdom, and then also we'd characterize that half of this run in gold has been in the love trade. It's not just the fear of death, but it has to do with rising GDP per capita in emerging markets where there's a high correlation, where there's a natural affinity for gold.

And we also are big believers in what we like to call the Great American dream trade. That is what emerging markets are about. Those countries that are truly embracing the American dream. You're seeing and witnessing a tremendous growth with less leverage, less debt. You go to Africa, and it's amazing to see a non-debt society growing at 7%. And you go to Asia and you can still see spectacular growth. On a regular basis, I've been going over, and that's how I have been able to note on a regular basis.

Recently when I was in Bangkok I was just so amazed to see the significance of Christmas and the holidays everywhere. We don't see that in Chinese New Year here -- how they have embraced that American dream that they want to have presents, they want to not only have it for their own Chinese New Year, they are also embracing giving out Christmas gifts. I thought that was quite a remarkable part that we sent around the world.

Investment leadership is always a continuous process of adopting the change in markets, and I'm going to try to walk you through some of the things that I'm seeing as we look around the world in the sort of fast track process.

But the global PMI, as you can see on page 31 -- the JPMorgan Global Manufacturing Index, there are a lot of macro funds that follow this. One that turned negative last April, then all of a sudden you saw macro funds doing a 180 and selling. If you had the emerging markets where the American dream trade is taking place, all of a sudden they are raising interest rates to slow down inflation, slow down money supply to get control of their inflation. Immediately there was a huge selling coupled with the fear trade of the debt battles in America in August, along with the Greece and Italy and Portugal and Europe, only to turn around and saw manufacturing start to slow down.

But we have seen a turn. And that's what's important for us, is that when the one month goes above the three months that it's a more bullish scenario. And we've seen now for two months in a row, China is -- PMI rising and global PMI. So there are important factors for seeing money flows around the world. And we're seeing money coming back into the commodities and to the emerging markets.

Another virtuous see is strong momentum for US stocks where the 50-day is approaching the 200-day. And we think that when this takes place, you will see a brand-new pattern of buyers. And there's a conference. I think that there's not just technical analysis, that this is much more a reflection of confidence and that the light at the end of the tunnel is not a train coming at you, but it is some sunshine.

And the next visual is showing you the leadership that takes place on these small-cap stocks. As you can see, they just got decimated in July, almost before the big selloff took place in August. They took it on the chin, and now they are defying the odds and they're rising much more dramatically. And I think that when that 50-day goes above the 200-day you will see even a bigger move in these small-cap stocks.

Copper, another similar pattern -- copper had first a selloff in July, and then in August, when there was the big trade around the world and the Japanese came in and had a huge currency move that created what we like to call the carry trade, it basically pulls in money back into Japan and people that are borrowing inexpensively in Japan, they're long on copper, long on emerging markets, small-cap stocks because that's where the growth is. That's where you see, all of a sudden, huge selling. And so the borrowing takes place again and they start buying where the growth is, and the growth continues to be in small-cap stocks and commodities and countries that have strong infrastructure building models. That's what copper is showing you.

And further, supply -- supply for copper and supply for all of these commodities continues to experience tremendous delays and disappointments. Many of these countries all of a sudden move the goalpost, change the tax regime. Capital doesn't get these projects developed or they go on strike or you have mother nature comes in with an earthquake that impairs the ability to deliver that product. So Freeport-MacMoRan, which has been on a tear in the past three months -- it saw its copper supply not come in the marketplace because of strikes. But then the copper price starts rising and they make up for that difference and it shows up in the stock price. You can see on the resource stocks, they are starting to turn in the Toronto Stock Exchange. We like to show the Toronto Stock Exchange because it's the leading financial capital of the world for the formation of capital for resources. And it seems to have turned -- still got a long way to go. And that's what provides the upside.

But we do know that there are fast movers that we call the RA that moves on a 50-day moving average. And then they move -- then there's another group to move the 200-day moving average. And we also, I have mentioned this before, that when you go to Yahoo! and you go to their technical analysis, default buttons are always 50-day and 200-day. And there's a correlation to money flows into those asset classes.

Hopping over more specifically to look at the BRIC companies in the second half of 2001, they declined up to 30%. We experienced that. It doesn't really matter unless you go 100% cash and you are out of all of those stocks. But when you have funds that are committed to that space, that's a big, big call to make. So we have to try to make sure that we weather through that storm and be as flexible as possible as to how we weather. We did raise our cash levels to try to buffer that decline, but I would -- what you can see here is that they did go and took it on the chin. India was the worst, and you can see here that Russia was the second worst. And then you had Brazil and then China.

But China got 98% of all the bad publicity. Everything was dumped on China as being the pariah of the world when, in fact, many of these other countries fell substantially more in the capital markets. What you're seeing on the rebound in the BRIC countries coming out of the first month, is you can see that what was the dog of last year is the darling for this month, and India is coming out of that. And they have dropped interest rates, so it appears that they are doing everything to get their economy clicking again. Russia has elections, so we'll see what happens when the elections take place. But we are seeing that China is slowly climbing out of it, and it's not exploding, but China has been a net importer, record, of gold, increasing of copper. They are also with oil, so the other positive parts with this growth in China I think is going to be not as sensitive because it didn't fall as much. It's not rebounding as much.

What are the drivers for 2012, the rebound? We see increasing money supply, especially from countries like China that slowed down. I'm going to show you a visual that the world's money supply increased dramatically last year, even with China, the second-biggest GDP in the world, contracting its money supply on a year-over-year basis and not turning the spigot up until November-December, and cuts in interest rates by BRIC countries and other countries. And what we are seeing in China and India is dropping the reserve ratios. These reserve ratios are very, very important when looking at emerging countries because it buffers these banks. Because you always hear all the negativity of our banks and the European banks because they're leveraged at -- the European banks are leveraged 30 to 1 and 40 to 1. And that was always the crisis for Bear Stearns and the crisis for Lehman Brothers and the Japanese blow-up in 1989 was because the banks were leveraged 30 to 1. US banks are substantially healthier on a leverage ratio, and Chinese banks -- they have increased those reserve requirements six times. It's quite remarkable. And when you go buy a condo in China, you have to have 30% down on your first one, 50% on the second. And what China has tried to do is slow down Shanghai's real estate in Beijing and cities along the water, along the coastal ports, in particular, because they were becoming too excessive. So they stop you from being able to buy a third condo. Those were very successful. And they also limited -- so not only did they raise the banking reserves against bad loans and fears of bad loans, they, in addition, raised the requirements and limit the people who could trade in housing. So they have now been successful in creating that's slowdown, and we are seeing property prices decline.

Will they go through the process that we see in North America and Europe? Probably not, as Mark Faber likes to say, because Hong Kong can have tremendous volatility in prices, but they step back up because a lot of the housing does not go through a bankruptcy process because there's a lot less debt against those homes. I've mentioned this before. It's important to remember that over 94% of cell phones in emerging markets are pre-paid every month. Cars are cash. Housing is predominantly -- there's a very little bit of mortgage on it. So type of a crisis which we have experienced, where 90%-some-odd of all cars in America are [borrowed] against. It is the opposite in these emerging countries. So the huge car sales boom that took place in China last year was predominantly a cash trade.

But what are the headwinds we still have to wrestle with in the marketplace? That's what I'm trying to show you on 39 is the rollover, the rollover of debt. Just not new debt, but just the rollover is $8 trillion. And so what did Bernanke say last week, which is very important for this risk-on/risk-off trade, is that rates are going to stay low to 2014. So, therefore, the debt burden for these countries if they can maintain rates lower and rolling over this debt and if they have new debt funding it won't be such a burden for the interest cost.

Well, that to me is very, very telling signs of currency devaluation, very slowly, and you are basically buying a treasury bill and getting a negative real interest rates in all these countries from 3% to 4% on your money, so it's best to go buy high-dividend paying stocks. The average emerging market stock pays a dividend of just 3.8% -- or, sorry -- 3.2%. And you are seeing that if you -- that's the bigger cap stocks. If you broaden the universe, it's still higher. You can buy S&P stocks that have growth of these emerging markets that are paying dividends higher than a government's 10-year note.

So why would you buy a US government 10-year note when you can buy a company in America which is growing its revenue at more than 10% and the dividend yield is higher than a tenured note? So I think there's going to be a shift in capital that way so this head wind will create some drama, lots of publicity. But it will be set up for a buying opportunity as these economies continue to grow.

The next one is showing you something that we like to look at, that's comparing the E7 to G7 money supply growth. What you can see is the G7 countries are still struggling. They have refunded the banks, but there's no loan creation of any substantial amount. If money supply starts to rise rapidly, it means that there's loans being made versus emerging markets. You can see there are still pretty healthy loans being made and healthy money supply. Remember that the E7 countries are 50% of the world's population and less than 20% of global GDP, whereas the G7 are 50% of the world's economy but less than 15% of population.

The next visual is showing you the 12-month rate of change for money supply is turning bullish because China was dropping it in 2008 because of the crisis in North America and Europe. China came in and pumped a lot of money into their economy because what people don't realize is 75% of their economy is domestic. A lot of the economic boom is infrastructure building and it is not trading, it's not so much of selling products around the world, it's also tremendous consumption internally in China. But what you see on this visual is a slight turn up, it looks like, on a 12-month rate of change. But the next visual is showing you when you look at the three-month rate of change in that M2, we have a huge surge. So that spigot has been turned on in China, and that has shown up immediately in January in commodities.

The other thing we've noticed is that several hedge funds blew up last year with net redemptions and there are some CIO changes at some of these big funds that are $8 billion. And the CIOs blew out in December $400 million worth of junior resource stocks. And they just hammered these stocks. They didn't care if they fell 90%. They just wanted them in their portfolio. The new CIO does not want to participate in that space, doesn't understand them, doesn't care. And that provides a buying opportunity if you are a buyer, if you have the capacity to buy. But it's very painful living through it.

The next is a visual showing you that the global money supply still remains strong at 2011. And to me, that's very significant as a demand for commodities. Remember, last year the world's population went through 7 billion -- very different than the 70s when the population was 3 billion, so the world's population has doubled. China and India had no global footprint. Today, they are significant contributors of global economy, and they are predominantly a big user of resources to build out their economies. And money supply has been rising in those countries. And if China is slowing down, it doesn't matter; the other countries seem to pick up the slack.

I've commented on our visual, the big S curve, where we are. I still believe we are halfway through, but in the interim there's going to be tremendous seasonal volatility in commodities -- you can visit their website. Recently Business Insider took my presentation in Cambridge and Vancouver, and I believe it was out to a circulation of 8 million, and 70,000 people downloaded this presentation on what's taking place around the world with my travels. So if you'd like to get it, you can visit our website or you can go to Business Insider. I think it was characterized as Frank Holmes' optimism.

The next visual is showing you China and India's share of world GDP. What's important here is that they are 40% of the world's population and over the next 20 years, if they become -- their GDP is 40% of the world, basing their population, we still have a huge cycle to grow. China and India's rising middle class -- this is very significant. I commented that the number of millionaires that have taken place out of China is -- there's 1 million millionaires. Think of that, 1 million millionaires. And it's not like it was taking place in Russia, where a handful of oligarchs were smart enough and basically captured those assets as privatization took place. These are people that have the rights to great American products like Kentucky Fried Chicken, McDonald's, the early movers -- Starbucks is opening rapidly. They are in the coal business. One of the billionaires of China has made so much money from coal that they can't take their money out of China, so they've reinvested it and they have built a city -- they have built a city! And that's a ghost city, but that comes from a billionaire. And I think that things like that are really quite -- that's excessive, but it's not the government is out there promoting. It is what someone is trying to create, something -- real estate value from that was basically dirt.

But this is the big change. And why this is also important, Hermes' stores -- I mean it's expensive -- Hermes buys are expensive. And the belts -- I know they are really expensive. But 50% -- the stock was up 60% last year, and 50% of the revenue is not in Europe; it's imploding, a French company -- it all has to do with Asia. America's Coach purses, etc., said 50% of all their growth is taking place in Asia. I can go company after company -- YUM that's behind Kentucky Fried Chicken and other food franchises -- their growth is also in Asia. And it's this rise of the middle class that is very significant and will continue to grow. When you have 40% of the world's population, have 60 million wealthy people, it does have a huge imprint on high-end products, cars, etc.

Now let's take a look at 47. We've had to deal with this negative press in China. It's just amazing to see. If you use exponential modeling to try to look at bubbles, this is a bubble. I've just never seen so much anti-China press that's taking place. And so it is -- going back is to go back in history and take a look at where China is on a relative basis of 2009, China's GDP goes back to where America was in [2066].

So I'm a big believer, this S curve is not over and this cycle is in China is slowly evolving. More land is being given to the working person. There's more -- there has been many more protests that predominantly within local areas where there has been any type of corruption. And there is no social stability and there is no means for local citizens to build their wealth. And they go on a protest that gets elevated to Beijing, immediately Beijing comes in to find out if there has been any crookery, fraud, etc. And watch out, if you are the mayor of a city that has been taking bribes, etc., because you don't have -- not only no career, you don't have a life. It's very serious of how they deal with that. But it seems that when there is a protest that gets greatly exaggerated in our terms. But you can see there's massive urbanization on slide 49. It continues. And what's important, and like all businesses they redo their business plan every year. China does it. They redo their business plan every year for five years out. And we think that that's very significant. There are big dams, the Big Gorge dams; they have big, big mega infrastructure projects have come to basically a halt, and now you're seeing underground subway systems being built, super train stations. I'm going to comment in a second -- still more electricity, power to get to the rural area. These things are still in place and will continue. And the demand for steel, the demand for many of these other products will remain healthy on a relative basis.

What's really important to recognize is that the environmental costs for gold, copper and all of these commodities, is rising. The same with oil -- it is the costs now are well over $75 for looking for a barrel of oil. And gold -- we were commenting that the continuing capital expenditure costs for caterpillars, etc., now is over $200 an ounce. So not only salaries, wages and everything else, the basic CapEx cost is rising dramatically. So it's making it more difficult to get a supply to the marketplace, and this is something that's important on the backdrop of the demand for many of these commodities.

China, as you can see, and India increasing share of global oil demand. In America we are shrinking, cutting back on our consumption of oil. In particular, pulling out of Iraq will have a significant impact on the consumption of oil because the US military is the largest consuming unit of oil in the world. And so with that pulling back, it doesn't really stop deter the demand that is taking place in these other emerging countries.

What's great for America is frac. Then there's a lot of negativity now on fracked drilling, but we've now had this massive supply of gas. This technology is being applied to oil. Hopefully we can stop importing as much oil that we've had in before, that we start building pipelines and infrastructure for the gas, natural gas that we are discovering. That will make us independent from the banditos like Chavez, less money leaving our country to go pay for oil in these other third-world countries that are really not friends of America. So there's those positive parts in this, but the demand for oil will remain strong in these emerging countries.

The love trade, I've commented, was -- won an award for its educational piece by a national organization in the US, and then I think it's just very simple. You can see the correlation in the emerging countries, especially China and India. And you go to Vietnam and Thailand and Dubai, etc. -- there's a very strong correlation of their GDP per capita rising in the consumption of gold. China's increasing jewelry demand you can see here that as the GDP rises per capita that the price of gold demand picks up. And this is the year of the dragon; it's a very prosperous year. And we saw record demand in China for gold.

The next visual is showing you still experience a strong growth momentum in urban employment in China. That's what's important. It's never a straight line, but it still remains healthy. And that's what China has been concerned about, as you can see, is the real GDP it shows you here is slightly a decline, but urban growth is rising. And that's what China has been building the infrastructure for, to create jobs and also for stimulating domestic demand. When they make air conditioners, they're probably consumed in China, same thing with cars, as being record car sales. China is doing everything to relocate going west and going north out from the coastal cities. So their policies have been trying to slow down their real estate price appreciation and inflation along the coast and move things to the interior with tax-free zones, etc.

But I think the real significant infrastructure buildout which will drive consumer demand is the railway buildout. And we are not halfway there. Hopefully, by next year we may get through the halfway mark -- and there was a tragic accident last year, and immediately China went on to investigate to find out what's taking place. And they had come out with models to continue with the program. And what we are seeing here on the next visual is myself, and we took the whole board in the past August to go over to China. And we took this speed rail from Shanghai to Beijing, and it was just absolutely mind-boggling an experience, zipping along at 300 kilometers an hour, 180 miles an hour. And it was spacious, it was clean, cell phones worked. It was a wonderful experience and you go right from downtown to downtown into brand-new train stations. There have been two built in Beijing, and then they've built these massive infrastructures above them and they are connecting underground subway system lines between these super train stations.

And America did this in the 1950s in building interstate highways. And to be able to move the masses and those that cannot afford an airplane, fly an airplane or buy a car, can't afford to see their loved ones throughout the nation on speed rail. And I think that this is going to have a significant impact, and you are seeing lobbying -- Pizza Huts, Starbucks, McDonald's, Kentucky Fried Chicken -- just think of connecting 250 cities, connecting a span of 24,000 miles, 1 billion people being able to move around and reaching 700 million people population with budgets in place for the cost of $300 billion.

Reasons for active money management -- this is a visual we've created to show you the flags as the countries, as you can see performance. A tremendous rotation that takes place and why we're big believers and need to have active money managers. And it's all -- government policy is a precursor to change. We are big believers both domestically what unraveled our markets in Europe and in America is government policies and dealing with the debt ceiling and all the fear has a dramatic impact. Just the same as you can have impact in these economies and support and to recognize that government policies are focused for us on monetary and fiscal policies and how they are balancing that and do they have infrastructure projects because they create jobs for 20 years -- not welfare programs, not entitlements.

Basic psychology 101 says that if you give people a consistent welfare program, all of a sudden they quit working, and when things are done that they have to hustle and they may lose their job, and they may lose their bonus, they maintain a work ethic. And the social safety net is excessive in Europe and excessive in America when compared to emerging markets. And I'm a big believer that unions in America do not like China because China has taken away their pricing power. And after China it's going to be Thailand or Malaysia or India, these other countries can have engineers -- and that's something is very significant, why GE has gone to India. They have engineers that GE built a school for 2400 PhDs and engineers, one HR person. That means that those engineers over there can build a product with International Standards Organizations, quality standards, which is necessary to sell anything to the US government, particularly the military. They have to be ISO certified. You can have stuff like this manufactured in India with these engineers, and that is pricing power, because the intellectual capital is in these countries -- not just the lower end on the food chain of labor, but also highly educated individuals. And that's what's key, and that lends itself to the next visual and another reason for active money management is just the rotation that takes place in commodities.

I'm ending the presentation. Trying to stop this bull market has its risks. So good luck and now we'll open up to questions.

Thank you, Frank. Now we will take some questions. To ask a question, please type your question in the dialog box at the bottom of the screen and click submit.

One of the first questions we have today is, Frank, you highlighted that the Company has paid consist of dividends for 55 straight months. Do you see any changes to the Company's dividend program going forward?

That decision finally -- as the legal process comes from the board to make that determination. But based on our cash flow, based on our cash in the bank and based on our assets, I don't think, as I mentioned earlier, that our situation is as severe and how we've weathered this storm is much better than 2008 and 2009. But it's still -- that final decision, Susan, comes to the board to make that determination. But I feel comfortable, based on facts and circumstances that we have today.

And that's approved on a quarterly basis; correct?

Correct, Susan?

Yes.

The next question is also for Frank. One of the key developments we had in 2011 was the underperformance of gold miners versus the price of gold bullion. What factors are you looking for this year for gold miners in order to close that gap with gold?

It's a great question. It has to do with this risk-on/risk-off trade that takes place. When there's basically a risk-off trade, all equities get sold, from big cap, mid-cap, small-cap -- gold stocks get characterized along with Starbucks. It's bizarre, but they all get lumped together. And there's just a capitulation taking place that we are seeing many of these gold stocks at PE ratios that are like the crash of 2008. And the price of gold is higher than in 2008, so you are seeing great, great results from many of these companies.

And they are showing up and increasing their dividends. That's another key factor, and Newmont coming with a policy to tie dividends to the price of gold. And I think that we will still see that to continue, that these gold stocks -- they will go through. If you remember your trigonometry and the cosine and the sine waves, one crossing above the other, we've seen this between bullion and gold stocks over the past 20 years. But this is sort of one of the larger ones of a difference that we saw, and particularly the small-cap gold stocks. But we think that we are due for this big substantial rebound.

That looks like that's all the questions we have for today. Thank you, Susan. Thank you, Catherine, and thank you, Frank, for your participation. And thank you, everyone, for tuning in today. There will be a replay of this presentation available on our website, www.USfunds.com, later in the week. Thank you.

Frank Holmes Thank you, everyone. Thank you, Ryan.

Thank you. And thank you, ladies and gentlemen. This concludes today's teleconference. Thank you for participating. You may now disconnect.