Mr. Holmes: U.S. Global is a boutique investment company; it's public, its ticker symbol is GROW, trades on Nasdaq. It is part of the Russell 2000 small-cap index; it has predominantly smaller-cap-value institutional shareholders and investors that believe in the growth of emerging markets. And resource industries have used GROW as a proxy on the super cycle of commodities. We have 13 funds, from money market funds to tax-free, to Eastern Europe, China, gold funds and energy funds, and an infrastructure funds. We have been recipients to many, many Lipper awards for the past 10 years, for one, three and five years for our different funds. And we are known for gold because a little more than a year ago, I co-authored a book on gold called The Goldwatcher: Demystifying Gold Investing. So it's associated with us. We won many marketing awards for education from the Mutual Fund Education Alliance (MFEA), an industry group. We try to have our Web site be very robust in terms of educating people, and also in terms of what's happening in emerging markets and countries. We have 40,000 viewers a week that subscribe to our Weekly Investor Alert that is sent out each Friday evening. We also have a blog called "Frank Talk" that gives a pulse of how we're seeing the world.
TWST: We appear to be in a bull market for gold and precious metals. Is that your view, and will this market continue through this year?
Mr. Holmes: I think it's really important to see the big picture, and I'm going to drill down to some of the key factors. The biggest picture is that we believe we are in the supercycle and historically these cycles last 20 to 25 years. There is a lack of investing; all the intellectual capital has switched over. From 1980 to the year 2000, every young, bright kid that was going to be an engineer was not going into mining engineering. They are going to be something into else, the Internet, Web engineers or telecommunications engineers, because that's where the boom was. We have the world's population during this period continuing to grow. I think it's really significant that there's been a huge shift in world population growth since 1970, and the world's population has doubled. But we've also had a significant rise of the middle class in emerging countries. I think the movie last year "Slum Dog Millionaire" really shows that and identifies what is taking place in many of these countries, like India, China. I can go on with a list of them.
We believe that based on some math that we looked at, there is the driverof the GDP number we all see. Kuznets, a noble lord who used to teach at Harvard, is an individual who recognized this change. His work is know as the Kuznets Cycle. He noticed that if countries have government policies to create jobs infrastructure spending, then they create jobs for 20 years. We've taken that model and it the most populated countries in the world, and compared it to the richest countries in the world. We always used to hear the G7, we created the E7 - i'sthe seven most populated nations - and identified who and at what level they are in the Kuznets cycle, and what portion of their assets are going into infrastructure spending. is significantbecause this puts a big demand commodities. Under President Eisenhower thebuilding of interstate highway systemin America, America consumed 55% of all the world's commodities produced during the supercyclefrom 1955 to 1980. The one started in the year 2000, and we feel it's going to last for another 10 years; we're halfway through that cycle.
Now what's important - and I'm talking about the sheer magnitude of growth - is that in 1970 we had 3 billion people on Earth, and now we have 6.5 billion people. With that has been a creation of a global middle class. It's very significant in countries like China, where there is now 300 million Chinese, the population of America, speaking English. What you are seeing is not just globalization but urbanization. We are seeing information being shared around the world so rapidly that everyone, like in the movie "Slum Dog Millionaire," wants the American dream. We've seen that there are tipping points in these economies. When the GDP per capita goes through 2,000, real well-defined spending patterns evolve. The next key level is 6,000. When you have a population of a billion people and just 2% of them in the middle class, that is significant. When you have those 20 million people, which is the size of the whole state of Texas, making the same income as Texans are making on an average basis in India, guess what? You have a strong rise of the middle class, and this is what we're seeing at different strata levels.
What happens with these people is that they want a car. As soon as it starts reaching 6,000 per capita, they want a car. When it comes to a house, they just want to know that the water works, they want to make sure there's electricity. Those are the sort of standards that we have at this stage. But as the income goes on average from 6,000 year to 12,000 to 24,000 to 36,000 to 50,000, then all of a sudden they want those higher standards of care. Now what is important in recognizing, and this is how it relates to gold, is that there is a cultural affinity to many in these emerging countries towards gold as a gift and gold as money.
Last month I was in India, and what I noticed is that you can buy gold at a 10% markup to what the price of gold is at that hour, that's all. Whereas the markup in America would be 400%. You can get the most gorgeous gold jewelry, so people basically wear their money and they share it. You have incomes rising in places like the the Middle East, with higher oil prices. And you have it in India, and you have it in China, in Thailand. With this you see a natural demand for gold as money and gold as jewelry. I think that that's what leads the bull market for gold, the rising middle class in these countries.
Tickers included in this excerpt: ABX, GOLD, MRS, VEN
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