US Global Investors Inc (GROW) 2012 Q3 法說會逐字稿

Welcome to the U.S. Global Investors webcast, U.S. Global Investors earnings announcement for the third-quarter 2012. (Operator Instructions). We would like to begin by introducing Ryan George, Investor Relations at U.S. Global Investors. Mr. George, you may begin.

Thank you. Welcome, everyone, to our webcast announcing results for the quarter ended March 31, 2012. 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 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 the historical facts are subject to risks and uncertainties that may materially affect actual results. Please refer to our press release and corresponding 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.

If you have a question for us, you can submit it at anytime during the webcast. Simply type your question in the dialog box at the bottom of the 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. Let's start off with visual number four, please. GROW strengths. We are a "go-to" stock for exposure to emerging markets and resources. We are going to try to show you that. We remain debt-free, a strong balance sheet with reflexive cost structure. I'm going to try to walk you through as assets move up or down, particularly when they correct that we have the capacity in which we seem to do as reflect to those cost structures. And then we have the confidence of a monthly dividend and a return on equity discipline.

Number five, I want to thank our large shareholders and all of our retail investors, and news letter writers who recommended us, but what you can see here is that according to the NASDAQ filings, Royce & Associates, Financial and Investment Management Group, Perritt Capital Management Group, Team Financial Managers and SunAmerica Asset Management Corp. are all substantial in our top institutional holders of growth.

In addition, we have a wide retail group of investors that predominantly come from newsletter writers which follow what we are doing, in particular, our Investor Alert and recommended both GROW and our funds over the past decade.

On page six is to give you an idea what the long-term performance has been. It has been extremely volatile. I'm going to walk you through it, how to manage volatility, but our market cap remains around $112 million. Our 10-year annualized rate of return is 24.9%, far outpacing NASDAQ and also the S&P 500.

Page seven is GROW's underperformance even for this quarter. I'm just happy to see that we have outperformed the emerging markets, which have had a great rally, and they outperformed the S&P during this period, and we outperformed even the Venture Index.

The next visual is showing you, I give you the positive news, and let me give you some of the weaknesses that are taking place within the industry. On page eight, you can see industry sales trends, money flow trends and equities have just been taking it on the chin. Still this quarter on a relative basis, people are fearful. Our government policies, not just here, it is also in Europe and the contagion every time something negative in Europe is affecting the psychology of investors, even though we have a record percentage of the S&P 500 having dividends greater than the five-year government note. That is more than 60% and more than 40% of the S&P 500 are offering investors dividends higher than the five-year government note. Money still seems to be flowing predominantly into bonds, and this is still a conundrum. But I have written about it and the sort of apathy provides opportunity for investors because the markets are continuing to rally with that.

U.S. Global equity asset breakdown on page nine shows you that we still maintain a very strong retail component of loyal investors that deal directly with us. The greatest money flow swings we see come from platforms. They come in out of the platforms that are through the Schwabs and Fidelities, etc. And what is important for us is that they maintain a balance and grow the institutional and have a very strong retail following that is directly with us, in addition to provide the instant ability of people who wish to come through any of these platforms.

What you see on the next visual is volatility. We keep maintaining that managing expectations is one of the key factors of success in life. We published on this. I would anticipate before you participate in these different asset classes and recently being on a tour of raising money for the funds and also an educational tour, explaining emerging markets, which we like to characterize as the great American dream trade, in addition to gold investors that have been moving gold, comes from the "Love Trades" in emerging markets.

What we really -- I find fascinating is that it shocks people that for the past 10 years over any rolling 12-month period the S&P has been more volatile than bullion. And further to that, it is important to appreciate that emerging markets, which dominate our asset class and resource investing, have much higher volatility than gold itself or the S&P. The emerging markets have a plus and minus 30%, oil is plus or minus 35%, and the Gold Index, unhedged HUI Gold Index is plus or minus 38% is as normal. Approximately 70% of the time, these asset classes can go up or go down. And last year many of these asset classes were up one and two standard deviations. This year they are down, and that is how -- a drag in our overall performance. But our reflexive cost structure has allowed us to adapt through this process, which we believe is just a function of markets and odds favor mathematically for many of these resource asset classes to be higher a year from now.

Now another way of looking at volatility is on slide number 11. We like to count and measure volatility. How often do you get these 10% moves either up or down? Literally how many times does it happen looking at the volatility over 20 trading days, which is one month, and GROW itself has a very high volatility. We have thoroughly performed on this rally on the upside, and we seem to have at times take greater corrections. But it has happened 52% of the time over any month that has been basically a non-event to go plus or minus 10% versus the S&P is only 6%.

So we do have greater volatility, and investors can turn around to use that to their benefit, or they can turn around and feel quite fearful that it's had a huge rally, and they bought in and then it goes to its correction.

We do not control this. All we do is try to navigate through the waters of life.

And on the next visual in that process of trying to remain consistent is a dividend policy. And for 58 months we have paid $0.02 per month, which is approximately today a 3.3% yield.

On slide number 13, you can see that the quarterly average assets under management declined. As it said in the press release, this is reflective of the industry as a whole saw investor sentiment, negative sentiment, leading equity funds going into bond funds, and there was also a correction on a relative basis that you saw in many of these resource asset classes. They bounced, some of them more, but still we have seemed to have this lag on this relative basis. But we believe that it should be temporary.

One of the other big parts that has affected us has been our incentives that we have for outperforming index by 5% or underperform it by 5%, and this at times when we are outperforming can have a spectacular attribution of seeing 14 to earnings. As you can see last year at the end of March, it had a huge impact, and vice versa, assets are lower because of just market sentiment. Coupled with any type of poor performance on a 12-month rolling basis, it can cost us additional revenue, and that is what I'm trying to reflect to you.

But I am on slide 14. I am very happy on a relative basis of making the same as we did the previous quarter and taking a look at net redemptions of the industry as a whole, and in particular, resource fund groups had a greater flow of money out -- I'm going to comment on that later -- which just amazes me. It truly amazes me that Apple Computer, which I love and I use, has a bigger market cap than the S&P utilities, basic materials and energy combined.

One stock has a bigger valuation. And the last time I thought about it, a Mac is a want. I want a Mac, an iPad, I want that phone. I don't need it. I need a phone, but I don't want -- it is the difference between needs and wants. But I do need food, I do need water, and I do need energy, and I had to go fill up my gas tank to get to work. These are needs. So it is amazing to see that the needs of equities that are resource-based are not getting the valuations that they have in a previous -- in these sort of cycles where commodities have remained high. And we believe this is psychological sentiment-wise, but over time mean reversion will pay -- come through.

When you take a look at our pretax margins, you can see on slide 15 they slightly improved. This is a positive note, even though we have flat earnings.

On page 16 we still remain strong in investments. We have increased our investments in the new institutional dividend paying fund, and our cash, our overall working capital remains really, truly healthy in the context, especially when compared to our peers.

Slide 17, three reasons GROW is more attractive than peers. When we take a look at our three-year average earnings per share growth, now remember this has come from a low of March '09 when markets were basically going through a huge correction of '08. So we can show how explosive we are on the upside. As a value investor, our returns on capital are higher, even though many of our peers have leveraged balance sheets. And our income yield, our dividend yield is higher. So we are very happy for the growth investor, the value investor, and the income investor, or the investor who likes gold, leasing goal, emerging markets, etc. We provide a proxy, so rather than having to go over to those other countries in the world, which we do with our funds, they can come directly and on GROW.

With that, I would now like to turn it over to give you a more detailed income statement analysis, a financial analysis by Catherine Rademacher, our CFO.

Thank you, Frank. Good morning. I would like to summarize our results of operations for the quarter ended March 31, 2012.

And beginning on page 19, it shows we recorded total revenues of $5.5 million for the quarter. That is down 52% from the $11.4 million we recorded in the comparable quarter last year, primarily for the following reasons.

Mutual funds advisory fees declined by $4.7 million. Of that amount, $2.7 million was attributable to a decrease in management fees due to lower assets under management that Frank detailed earlier on slide 13. And another $2 million was attributable to a swing in the mutual fund performance fee adjustment from positive in the comparable quarter last year to negative this quarter.

Distribution fee revenues also declined by $680,000 or 41% due to lower assets under management, and transfer agency revenue decreased by $504,000 or 37% as a result of a decline in shareholder accounts and a number of transactions.

Moving on to page 20, total expenses for the quarter were $4.7 million, a decrease of $2.6 million or 36%. As Frank mentioned, we do have a reflective cost structure and with a high level of variable costs that can move in tandem with our assets under management.

Platform fees decreased by $857,000 or 50% as a result of lower assets under management. Employee compensation and benefits declined by $739,000 or 24%, primarily as a result of lower performance-based bonuses.

Advertising decreased by $674,000 or 99% as a result of decreased sales and marketing activity, and G&A, general and administrative expenses, declined $345,000 or 20%, primarily due to prior period software implementation and consulting expense.

And next we can go to page 21 to look at net income, which shows that for the quarter we earned $487,000 or $0.03 per share. Frank mentioned earlier that is an 82% decrease compared to $0.17 per-share earnings reported in the comparable quarter last year.

And moving on to the balance sheet on page 22, also as Frank mentioned, we do still have a very healthy level of cash at over $20 million. Cash and securities combined make up 83% of our total assets. Also, as Frank mentioned during the quarter, we did invest $5 million of our cash in offshore fund that we advised that invested dividend paying equity and debt securities of companies located around the world. This investment is reflected in available for sale securities on the balance sheet.

And finally on page 23, we still have no long-term debt, as you can see, and the Company has net working capital of $27 million and a current ratio of 9.5 to 1.

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

Thank you, Catherine, and good morning. I would like to update you on a few of the recent events and activities that happened during the past quarter.

We are pleased to highlight that several of our funds continue to receive recognition for their long-term performance. Here at U.S. Global we strive to be performance- and results-oriented, and these rankings are definitely a testament to that value.

Barron's and The Wall Street Journal recognized three of our emerging markets and natural resources-oriented funds as ranking among the top 25 in the entire mutual fund and exchange traded fund universe for the 10-year period ending March 31. The Global Resources Fund ranked 12th, the World Precious Minerals Fund ranked 13th, and the Gold & Precious Metals Fund ranked 24th, according to the Lipper data.

And, on the next slide, you will see how Frank and the U.S. Global Investors portfolio management team continue to be sought out by national media for their thought leadership and insights on natural resources and emerging markets. Our unique positive blog post and interviews on the global market attracted numerous Web mentions and newsletter recommendations. During the quarter, Frank was profiled in Mining Markets Magazine, which included an extensive biographical background, as well as coverage of his presentation on the super cycle in commodities and emerging markets.

Also, Commodities Now featured an article written by Frank on the escalating use of commodities in emerging markets.

Next, our bullish and contrarian position on China also affected media attention during the quarter. In January Frank participated in a special hour-long debate on China at the Cambridge House Vancouver Resource Investment Conference with known China bear, Gordon Chang? Following the event, U.S. Global's comprehensive presentation on China was posted on Business Insider's website, and it received well over 86,000 views.

Likewise, after US U.S. Global's webcast on China with our special guest, Andy Rothman from CLSA, the slides were featured also on Business Insider, and these attracted nearly 75,000 viewers.

The distribution of Frank's blog, Frank Talk, continues to increase. We are very pleased with the numerous readers who are choosing to receive updates. We now have a new e-mail subscription service. The Frank Talk blog's mass syndication of about 60 content partner sites have a combined monthly reach of over 25 million visitors, and this continues to be an important way for us to increase our readership.

Our advisor audience is growing as well. During the first quarter of 2012, U.S. Global's commentary were well received by the advisor prospective audience with several hitting the weekly top 10 list of the most read articles during the last quarter.

And lastly, we've just scheduled numerous sales and marketing activities to personally connect with investors and advisors, which we believe is critical during this type of market. In a few weeks, our team will be attending the Hard Assets Conference in New York where Frank will be speaking. We also have events planned for the upcoming Morningstar Investment Conference in June and the FreedomFest in July.

Now I would like to turn it back over to Frank who will lead you through what investors should expect for the global markets during the remainder of 2012. Frank?

Thank you, Susan, and thank you, Catherine. It is interesting that everyone wants to be a bear on China and going the other way. People have written books on it and been wrong for 10 years that it is coming to an end. China has showed that it is showed the discipline of trying to slow down inflation last year, and now they have turned up the stimulus, and that to us is a key factor for defining the apathy.

Last September I published a piece on apathy, and this would provide a great opportunities for markets to rally, and they have done a spectacular rally out of September/October lows.

It is an interesting fact that recently on slide 29 you can see The Economist's comments regarding how pessimistic is the overregulation causing an apathy for investing, even though the stock market is rallying. We think it is important to be able to appreciate these differences and capitalize on the markets.

But a share with investors, our products like global resources and gold stocks -- I am going to walk you through -- are down over one sigma, one standard deviation and mathematically odds favor. So no assurances are guarantees, but just based on math of markets and how they breathe, odds favor that in a year from now, they will be higher. Just as a year ago when they were up almost two standard deviations, we have now gone through a correction. But the apathy has been so much more severe in this correction because of redemptions out of the whole industry and going into bonds, and that, that is what we believe is the bubble.

Long-term bonds is an incredible bubble, and they are brewing much more than has been characterized regarding China and other difficulties in the global marketplace. But they still provide significant opportunity, and I believe that we are quite poised for the upside.

So let me try to walk you through looking on page 30 what you can see here is a global earnings reversal to the upside when looking at the MSCI All Country World Index. You can see that it was declining last year. This had negative impact in particular because much of the world's population, more than 50% of the world's population was slowing down their economies to get control of inflation, and now that spigot has turned up from ISI numbers showing we have written about this on Frank Talk. There is something like 70 to now 100 countries in the world have then programs to stimulate economic activity.

So I think that this is so positive, but you would not think so because money has been flowing into bonds. And it just is fascinating. This is what Warren Buffett is talking about. This is where the great opportunities are where one can turn around and buy dividend paying stocks offering yields higher than five and 10-year government notes with balance sheets better than the federal government in Europe or the federal government in America. With topline growth, I think this is very significant and provides great -- I guess great opportunity for those investors that can understand these bigger waves. And the biggest of all the waves on slide 39, it is so important to appreciate the S-Curve, and the big question is always the math. Where are we on it? And I believe that we are halfway through this big S-Curve.

So let's take on 32, urbanization drives a dramatic rise well, and this is what we are seeing when we take a look at companies like Starbucks commenting about their spectacular growth in China and all of Asia. As these countries and the other continents of the world basically embrace the American dream, they want the best schools, the best hospitals, the best highways, the best, the best, the best that America provides, and so once they build off this sort of infrastructure buildout, you have rising GDP per capita. And as that takes place, you have a huge consumption. And within the sea of 2 billion people in Chindia alone, there is a huge 5%, 100 million people making more than $50,000 a year, growing, and this creates a huge consumption pattern for American products.

I think if you take a look when one takes a look at Tiffany's or Coach purses, they have all commented on the ability to be able to export. Now at the beginning of this big cycle, we saw the exporting of Caterpillar's to be able to build out the infrastructure, and now we are starting to see American consumer products because in these countries they all love American products. So we are now exporting that great American dream in many ways more than one.

Page 33 gives you another simple visual that emerging world holds half of the global population, but just 11% of GDP, but growing at 3 times the GDP growth of Europe and America and Japan combined. So this is important to recognize where the opportunities are and the demand for commodities like oil.

The next visual is comparing E7 versus G7 money supply growth, and what you can see is that money supply in the G7 still remains a modest barely 5% growth. That means money supplies that come from loans being made to small businesses to turn around to stimulate the demand that is out there or supply the demand that is out there, and as you are seeing this ability to have transactions where loans are being made much more rapidly expanding in emerging markets. And you can see 16% versus 5% is 3 times the rate. There is a high correlation of oil to money supply. So I think it all bodes very well for global economic activity.

And the next visual is showing you reasons for active money management. No one country stays at the top. There is tremendous rotation, and that is why one has to be able to rotate back and forth within those asset classes.

The next visual is showing you that China's GDP growth rate tends to stabilize in the fifth year of a new leadership transition, and what we are trying to show you here is that the new President and Premier coming into power on a historical basis China is, in fact, up. And I am going to show you at the end of this presentation why this is important that I think there's many reasons besides political leadership. There's other things that are in place in China.

Now there is a massive urbanization on slide 37 for China and India combined. It is many, many years away from peaking. As you can see on this visual, you have another 10 years of growth opportunity.

The next visual is showing you that GE in their presentations where they are bidding, they are actually bidding to meet the demand, bidding in their with their products to be able to help build up these economies, is a rising wealth drive plus $4 trillion in global infrastructure spending. GE is out there with turbines, with motors, with power. I was just recently in Colombia and saw GE power turbines. So it is important to recognize that our major great corporations in America are also seeing their opportunities to participate in this global [oakbuild].

And then on slide 39, what is important about this visual is that China and India are 40% of the world's population. I repeat 40% of the world's population. Their money supply is growing more than 3 times what we are doing, and that basically puts a huge demand for oil. But they are only 15% of the consumption of oil demand.

So what happens when they go to 40%? What happens to the price of oil? Where are the other energy sources going to be supplied from? So these are key factors of consideration. There is no free lunch in the periodic table. If you want to go to electrical power from gas, then all of sudden gas needs to go up. If you want to go from coal, coal needs to go up. If you want to go to hydropower, then all of a sudden they will cement an infrastructure of building up for hydropower.

So what we see is that no matter where they shift, when you have 7 billion people looking to embrace the American dream, it is going to continue to put substantial demand on commodities.

The next visual is an old slide. We like to call it, tipping point of explosive growth in the emerging markets. Auto market 2000, as you can see here, this sort of inflection point where non-OECD countries, the energy consumption, and this is going to continue to grow because today in China they are consuming over 15 million cars. And what I think is interesting is SUVs only five years ago were 300,000. Now it is going to be 2 million. Ferrari sales more cars in China than they do in America. Bentley sells more cars in China than they sell in America. So this is an important transition from SUVs up to high expensive -- extremely expensive luxury cars. It does not really matter that demand is growing, but most important to Americans is the number one selling car is GM's Buick because the Chinese love American products.

Page 41 is showing you another indication of gold. Gold prices surged with the increase in US monetary base, which we like to call as part of the "Fear Trade", but the other part of that is the "Love Trade", rising GDP per capita in much of 50% of the world's population is highly correlated to the price move in gold.

So it is those two combinations of the "Fear Trade" and the "Love Trade" that are taking gold to a higher level. And what we would like to point out to investors you can see in the next visual is the global liquidity boom has also been good for gold. Another way of looking at it, U.S. Global -- sorry, US monetary base rising, and at the same time global liquidity rising, the spot price of gold rising. We don't see a huge slowdown in the monetary basis, and we don't see a global liquidity contraction taking place for the next four to five years.

What is important when we hear about gold is, as I think to reflect to investors, is a strong correlation between gold and negative real interest rates. And it appears that we are going to live with negative interest rates in the US, according to Federal Reserve statements for another year. This bodes very well for gold as a monetary asset, not for the "Love Trade" where people give gold for religious reasons and anniversaries and weddings and birthdays, etc. This is gold as a monetary, and there's two drivers to gold price, the "Fear Trade", which is a form of monetary base, and the second of all is the "Love Trade".

On the next visual, 44, that "Fear Trade" is not going to go away as we can see because these governments are not going to make any huge cuts in fiscal spending towards entitlement programs, especially hiring more and more government workers. It's just really not going to see a huge contraction. Maybe it gets stable, but what you can see on this visual is that this year, Japan, Europe and America will roll over $8 trillion below the inflationary rate. And this is an important number to take a look at because this makes gold attractive for those that believe in the "Fear Trade".

The next visual is gold. That's not gold, but really what, as I mentioned at the beginning of this presentation, that Apple is a want. Global resources are needs. You need energy, food and water. And I just find it so fascinating that Apple's market cap, even though it has been an incredible successful story, we own it in our funds, its market cap is greater than energy materials and utilities.

The next visual is Alpha. What creates Alpha? It is not only selecting the right countries, the right sectors, the right stocks; it is the confidence you have in the weighting. So you can have a little bit of a stock that's a great performer, it is how much you have the confidence to have the weighting in it, and what I have seen in my road trips is the underweighting and basic materials that people need, not one want, they need. And a classic is that 15% of the S&P -- for those not aware, the S&P 500 biggest companies and market cap is to buy into 10 sectors 500 stocks. And in 1980 when gold hit $8.50 and oil $85 a barrel, the energy and basic materials component was almost 40% of the S&P 500.

Today, even with these spectacular moves, amazing moves in gold, along with basic materials, coal, copper, etc., oil prices, the overall S&P components of energy and basic materials is 15%. And I think that most investors are still way underweight in these asset classes, and they are basically ignoring the growth of the Great American dream trade that is taking place outside of America.

So the next visual for simplicity, Energy & Basic Materials are 15% of the S&P, and then I would like to point out one of our biggest funds is Global Resources. This fund has outperformed the iShares. This whole money flow into ETS and everyone so smart ETS, so we borrow perform. Expense ratios included, our net performance outperforms these iShares by a wide margin over the past three years that more than compensates for reasons of having money into the diversification. And then I am a big believer that investors should be at least 10% invested in resources. On this slide, it is showing up at 25% into basic materials and resources. But if you are not 15% -- and this has been my message out there to the RA space -- that you run the risk of underperforming, and that is underperforming being in the S&P 500.

Taking a look at the 10-year numbers, what you can see here is an amazing difference in performance and why you need to have active money management when it comes to these asset classes. Global Resources are outperforming the iShares of energy or the iShares of basic materials, which, by the way, have outperformed -- both energy and basic materials have outperformed the S&P 500. And those that are underweight have underperformed in the past 10 years, and that has been our message, and then we don't believe it is going away the need for these basic materials.

Now what are some of the key factors that makes the -- we are poised for a rally in these asset classes is on slide 52. It is a contrarian science that gold may be headed higher is the number of bears are outweighing bulls. It is just so negative. When we go back and we show these inflection points, it is usually time for a rally. The other thing we have noticed is that gold equities have far underperformed bullion itself, and you can see on page 53, they were back to the credit crisis lows of 2008.

And then I hop over and give you another visual on page 54, looking at the 14-day relative strength indicator of gold stocks to gold ratio, and you can see that gold stocks are way oversold. So this provides an opportunity to be contrarian and consider considering what the potential is for a rally in these asset classes, which U.S. Global GROW will participate and perform well in.

Now you can see on page visual 55 is gold stocks appear undervalued to gold. This is looking at the past 12 months. And we have looked at the ETS that the small-cap, basically the Junior GDXJ and the GTX and bullion, and you can see bullion is up 6% over the past year, which is about half of one standard deviation, so it does not mean it is overbought. But the gold stocks in the mid-cap gold stocks have severely been punished, and it's amazing to see that takeovers are taking place in this space that are 80% to 100% premiums. So this net selling of fear is providing a great opportunity for those astute investors.

The next visual is showing the gold stocks look oversold based on price reversals by Canaccord Genuity, a brokerage firm in Canada well-known, and one of the major players in this space of resource investing. This is just another classic example of looking at the odds of a price reversal and opportunity to participate in the growth.

And what we have shown you earlier is that GROW has the capacity as a company in these asset classes to have very quick expansive returns on capital and growth in revenue. And that to us is a key factor in how we participate and why we look at these asset classes.

Now the next visual is showing you what I commented on is a record year of mergers and acquisitions because it is so difficult to explore and develop for these resources that the M&A work is cheaper for big companies to go buy mid-cap or small companies, and the sort of Pac-Man will continue. And because these stocks are so depressed on a relative basis to the commodity, that you are even seeing premiums that used to be 20%, 80% to 100% premiums.

Another one is looking at the buying opportunity of S&P Energy Index. As you can see here, that it provides on a relative basis on a 12-month rolling percentage change that energy stocks look extremely attractive, and I try to highlight this on the next visual of looking comparing oil stocks lagging relative to oil, so oil stocks are undervalued on a relative basis.

And the next visual is looking at the discount -- the disconnect between oil prices and junior oil stocks suggests opportunities in the stocks are much greater. And I think that this will borrow at particular gas prices as gas prices remain so depressed, America, with the advent of exploration and technology, what we find interesting is that gas is under $2 an Mcf here, but in Latin America where I was it is $11 an Mcf. In Asia it is in the teens, in Europe it is in the teens, and only in America where they have had use of supply and technology, fracing, such being able to expand gas, and now we are starting to see conversion of new utilities leaving coal and going into gas.

So I think this is an interesting transition that will take place that will provide upside for the gas stocks.

Now the other visual showing you on page 61 is China is poised to revert to the mean. You have had for the first time, as you can see, this is looking at a periodic table of all emerging markets, and China in 2006 and 2007 was the top-performing country. This is also the top in the commodities, and we had a huge run, and China has gone through a correction as they have tried to slow down their economy due to inflation, their policies. Now they are re-inflating their economy, and odds favor the premiere coming in. There's no guarantees here, but they just have such a powerful suggestion of an opportunity looking for China, and we are just looking at even this quarter that China is one of the best performing emerging markets stocks for this quarter. So we think as the year progresses on, that we are going to see that China will be in the top half, not the bottom half, on a relative basis of other emerging markets this year, which is a high correlation to the interest and needs for these commodities.

The next visual is showing new reasons for active management when it looks at just these commodities. Tremendous volatility, rotation of the different needs for commodities. Gas has been the worst performing asset class for the past, as you can see, two years, and for the past three years has been at the bottom of the pack on a relative basis for commodities. Odds favor that it will be higher going into 2012.

Page 63 is trying to stop a bull market has its risks, so good luck. If you are a real bear in equities, remind investors that most of the analysts are bearish, that 87% of companies have beaten what analysts have forecast for earnings this past quarter so far, and I think the same thing is that most people put bears on China. I thought it was interesting listening to Bloomberg this morning that Merrill Lynch was commenting that most people said China was going to have a hard landing and they said a soft landing, and they have been ranked as a top global analyst team. So I think it is important to recognize, don't be so bearish, look for opportunities, and now I would like to turn it over to some of the questions and answers.

I have one question here that was passed on to me. In the press release, there is indication of a new offshore funding being seated for investment global dividend paying stocks and bonds. Wouldn't a fund like that make sense to offer to U.S.?

Well, you know, that is a great question because many of our funds have higher -- when you compare our Gold Funds and our Resource Funds, our dividend yields are substantially higher than our peers. Also, our MegaTrends Fund, which is basically in the infrastructure space, is a MegaTrend, it has 25% of its portfolio in very high dividend paying stocks. I would take a look at the All American that something like 95% of its holdings are dividend paying stocks.

Further, GEM's Fund, which is a very focused on looking at companies that have that 10% growth in revenue, have to have a dividend paying policy, but be in the bottom 10% on P/E ratios, which fits into our investment philosophy, growth at a reasonable price. We are GARP investors. And what is interesting regarding GEM's Fund with this high dividend yield that the emerging markets, the fund is looking at P on average in this small-cap space, dividends of almost 5%. That is more than 2 times the 10-year government note.

So I think that this is a thought process that we are doing with our existing funds. Ryan?

Thank you, Frank. One of the first questions that you spoke a lot about the investor apathy and the outflows into the trends in the industry. Wondering what catalysts are you looking for and events that may be able to change that investor sentiment?

I believe it comes from leadership and a leadership that sells and communicates a vision of hope, not fear. Not class war, not a vision of a blame game, but a vision of hope, and just like you see in many emerging markets of building up the infrastructure, building up the economies and not getting cut up and focusing the blame game. And this is still going on in Europe, it is still going on here, and I think that if we can get it turn, then you will see investor confidence change and have a greater confidence in the equities.

And when it happens, it will be explosive on the upside. So rather than waiting for that, the better part is to be participating because you can buy the bulk of America paying dividends higher than a 10-year government note, and that is sort of unprofound in most people's investments. They have been investing in the marketplace in this generation.

I think that what percentage of dividend paying stocks in the S&P that are greater than a 10-year government note is at a record high, and I think that this is always a great indicator for investors to be early in participating in this growth in opportunity. And many of these companies are participating and selling their products to those countries that are emerging and having GDPs growing at over 6%.

Thank you, Frank. It actually looks like that's all the questions that we have then for today. This concludes the presentation for the U.S. Global Investors earnings webcast for the third quarter of 2012. This presentation will be available for replay on our website at www.usfunds.com. Thank you, Frank, Catherine and Susan for participating today, and thank you for tuning in today. Thank you.

Thank you, everyone. Thank you, Susan. Thank you, Catherine. Thank you, Ryan, for doing a spectacular job.

Thank you, ladies and gentlemen. That concludes today's teleconference.