The Optimist’s Guide To Airlines And Gold

October 16, 2019

“Travel,” Mahatma Gandhi once said, “is the language of peace.”

If that’s the case—and I happen to believe that it is—then I’m extremely bullish about the future, especially with respect to U.S.-China relations.  The trade war’s days may be numbered as both sides of the skirmish reached a partial agreement last Friday, laying the groundwork for Presidents Donald Trump and Xi Jinping to sign a trade deal later this year.

Tourism has traditionally helped peace and understanding spread across borders, and I’m hopeful that it will do the same today. It’s also good for commerce, especially for airlines and the travel industry in general.

It’s Airline Earnings Season. Are You Participating?

Delta Air Lines, in particular, had a phenomenal third quarter as we head into the fourth, and historically most profitable, quarter. The carrier reported the best sales in company history as well as impressive earnings per share of $2.32, a 29 percent increase over the same period last year. CNBC reports that Delta is hiring as many as 12,000 new employees—including pilots, flight attendants and ground staff—through 2020 to meet surging demand.

Supporting this growth are rising ancillary fees. Those are the non-ticket fees and upgrades you may end up having to pay when you fly, for everything from meals to preferred seating to credit cards. Delta recently inked a new deal with American Express, which is forecast to generate a mind-boggling $7 billion in revenue for the carrier by 2023, up from $3 billion today.

But Delta’s not the only one that’s joined the party. In the chart below, you can see a comparison of the amount of ancillary fees select U.S. airlines collected in 2018, on a per-passenger basis, with what they collected a decade earlier. Low-cost carrier Frontier saw an unbelievable 1,187 percent jump in such fees, while Spirit topped the list with an average $50.94 per passenger.

If you’re not participating, now might be a good entry point. The busy Thanksgiving and Christmas travel seasons are fast approaching, and according to recent analysis by the Wall Street Journal, the fourth quarter has typically seen the highest returns, with shares rising 8 percent on average every period going back to 1990.

Time to Buy the Gold Dip?

I’m excited to see what’s in store for gold, which is headed back to its mean after its price was up nearly three standard deviations in August. As CLSA analysts said recently, these price dips look like attractive buying opportunities “in anticipating of a resumption of the initial base breakout.”

Last week our office was visited by the legendary economist Nancy Lazar, co-founder of Cornerstone Macro, who commented that the growing mountain of global debt, not to mention the proliferation of low to negative-yielding debt, makes the yellow metal very attractive right now.

I agree and stick by my call for $10,000 an ounce gold. Some critics believe only a major event, such as a war or famine, would be enough to push the metal up that high, but really all it takes is monetary and fiscal mismanagement. That’s exactly what we’re seeing right now in Europe, where growth is slowing because of business-killing regulations. But instead of getting rid of these rules, interest rates have been allowed to dip below zero. In Denmark, banks are actually paying borrowers to take out a mortgage, which is contributing to what Nancy sees as a European housing bubble.

Conditions aren’t much better in the U.S.—or at least they weren’t, until President Trump began rolling back unnecessary regulations.

According to Steve Forbes, there are 773,000 words in the Bible, which sounds like a lot until you learn that there are around 10 million words in the federal income tax code. Similarly, there are more than 185,000 pages in the Federal Register of rules and regulations. That’s up 17 percent from 158,000 pages in 2008. But in 2018, the number of pages actually fell almost 1,000 pages, or 0.5 percent, meaning Trump is keeping his word.

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All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor. Some links above may be directed to third-party websites. U.S. Global Investors does not endorse all information supplied by these websites and is not responsible for their content.

Standard deviation is a measure of the dispersion of a set of data from its mean. The more spread apart the data, the higher the deviation. Standard deviation is also known as historical volatility.

Holdings may change daily. Holdings are reported as of the most recent quarter-end. The following securities mentioned in the article were held by one or more accounts managed by U.S. Global Investors as of (09/30/2019): Delta Air Lines Inc., American Airlines Group Inc., United Airlines Holdings Inc., Allegiant Travel Co., Spirit Airlines Inc., Franco-Nevada Corp.

U.S. Global Investors, Inc. is an investment adviser registered with the Securities and Exchange Commission ("SEC"). This does not mean that we are sponsored, recommended, or approved by the SEC, or that our abilities or qualifications in any respect have been passed upon by the SEC or any officer of the SEC. This commentary should not be considered a solicitation or offering of any investment product. Certain materials in this commentary may contain dated information. The information provided was current at the time of publication.

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Frank Holmes is the CEO and Chief Investment Officer of U.S. Global Investors. Mr. Holmes purchased a controlling interest in U.S. Global Investors in 1989 and became the firm’s chief investment officer in 1999. Under his guidance, the company’s funds have received numerous awards and honors including more than two dozen Lipper Fund Awards and certificates. In 2006, Mr. Holmes was selected mining fund manager of the year by the Mining Journal. He is also the co-author of “The Goldwatcher: Demystifying Gold Investing.” Mr. Holmes is engaged in a number of international philanthropies. He is a member of the President’s Circle and on the investment committee of the International Crisis Group, which works to resolve conflict around the world. He is also an advisor to the William J. Clinton Foundation on sustainable development in countries with resource-based economies. Mr. Holmes is a native of Toronto and is a graduate of the University of Western Ontario with a bachelor’s degree in economics. He is a former president and chairman of the Toronto Society of the Investment Dealers Association. Mr. Holmes is a much-sought-after keynote speaker at national and international investment conferences. He is also a regular commentator on the financial television networks CNBC, Bloomberg and Fox Business, and has been profiled by Fortune, Barron’s, The Financial Times and other publications.  Visit the U.S. Global Investors website at http://www.usfunds.com.  You can contact Frank at: editor@usfunds.com.

The volume of all the gold ever mined can occupy a cube 63 feet on each side.

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