Frank Holmes'  Instablog

Investors are facing a political March Madness that will likely end in a disappointing deadlock if Congress doesn't "start talking about a serious deal that includes the entire budget," writes my friend Terry Savage in a recent email. The U.S. government is continually at an impasse over a spending cut of only $85 billion. Few would doubt that the figure is enormous, however, it is "just 2 percent of our $3.6 trillion in annual Federal spending. Every American family with a job has just taken a 2 percent cut-as payroll taxes rose in January. We survived-and Congress can too," she writes.

Terry and I have known each other for years. She is financially savvy, dynamic, and incredibly versant on personal finance, the markets and the economy. She is also the author of The Savage Truth on Money, which was named one of the ten best money books of the year on Amazon.

Her email, and the subsequent article published in the Chicago Sun-Times, hits the nail on the head for the no-win situation that Americans have been feeling for quite some time.

According to recent data from the Pew Research Center, trust in government has sunk to a historic low: Over the last seven years, only 3 out of 10 Americans said they trust Washington to do the right thing always or most of the time.

The opinion holds across partisan lines, although more Democrats than Republicans say they trust government most of the time. Historically, the party in control of the White House receives a stronger conviction from its supporters, yet "partisan differences in trust in government have been much wider during the Bush and Obama administrations than during previous administrations," says Pew Research.

This sense of distrust doesn't appear to be getting through to Washington. "As reality sets in that there might be some limits to our ability to borrow and spend, Washington is insulting the American people with stories of impending collapse of government services because they need to cut 2 percent from their increased spending," says Terry.

As Americans, you can voice your opinion by sending a message to your representative; as investors, you can manage your expectations and anticipate the volatility that will likely occur as politicians keep up their "March Madness."

Click here to read her message published in the Chicago Sun-Times.

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Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Do you know the seasonal pattern to China's equities during the Chinese New Year? Going back 10 years, based on median returns, the Shanghai Composite Index rose 3.46 percent, while the China H-Shares climbed 4.32 percent in the month following the week-long holiday.

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Successful investors seek to be early adopters. They tend to quickly recognize trends and historical patterns in the macroeconomic environment in an effort to seize potential opportunities. The seasonal effect around the Chinese New Year is just one trend investors can take advantage of. Here are a few others for you to ponder:

1. World Trade. In 2012, the country became the largest trading nation in terms of imports and exports of goods, beating the U.S. by $50 billion. According to Bloomberg, goods coming in and leaving the U.S. totaled $3.82 trillion, while China's trade in goods rose to $3.87 trillion. China is increasingly becoming an important trade partner in the world.
2. Oil. Urbanization is having a tremendous affect on energy demand. By 2030, China could be a leading energy importer, replacing the U.S. as the world's largest oil importing country by 2017, says BP.
3. Shale Gas. Outside North America, China is expected to be the most successful in the development of shale gas. By 2030, shale gas may be 20 percent of total gas production in China, says BP in its Energy Outlook 2030. To gain access to the technology and best practices, Chinese oil companies have joined forces with major international oil companies as its shale-gas industry ramps up.
4. Urbanization. By 2020, China is anticipated to have 850 million people living in cities, which is about 60 percent of the total population, according to the Urban China Initiative. Growing urbanization should drive higher incomes and an increase in domestic consumption.
5. Consumer Goods. While 97 percent of Chinese households had a television in 2011, only three-fourths of households had refrigerators and washing machines. However, the penetration rate of many durables is happening at an incredibly sharp pace, with Deutsche Bank anticipating that China will reach the levels of developed country by 2020.
6. Gold. Imports of the yellow metal into China from Hong Kong reached an all-time high in 2012. The country imported more than 834.5 metric tons of gold, according to Bloomberg. The World Gold Council expects purchases of gold jewelry and investment will go on rising at a steady clip in the Asian nation.
7. Growing Consumption of Gold. The country remains the second-largest gold consumer in the world, but growth in gold consumption should be higher than the world's largest consumer, India, says the World Gold Council.
8. Luxury Goods. By 2017, China is set to be the second-largest luxury market, surpassing Japan, Italy and France. While the U.S. is still projected to remain the top country in luxury-goods sales, China's maturing retail markets means that there's a growing love for luxury in the country.
9. Tourism. The Chinese are not only buying luxury items when they're at home. As one example of the tremendous thirst for brands such as Louis Vuitton and Burberry, Chinese tourists traveling through London's Heathrow buy about 25 percent of luxury goods at the airport, even though China's tourists only make up 1 percent of passenger volume.

Are you an early adopter of emerging market trends?

None of U.S. Global Investors Funds held any of the securities mentioned as of 12/31/12.

Would it surprise you if I told you that Chinese visitors traveling through London's Heathrow today buy about 25 percent of luxury goods at the airport, even though China's tourists make up less than 1 percent of passenger volume? This buying trend has been influencing the type of goods sold at the terminal, especially during this Chinese New Year.

This is only one example of how Chinese consumerism has significantly changed over the past 20 years. Within the country, more and more residents are relocating to the cities to get higher paid jobs and acquire discretionary income. In addition, government economic, social, rural and welfare policies are influencing the cost of goods. You can see the changes in spending through Jefferies Equity Strategy team's pie chart comparison. In its special report, "China 2025: A Clear Path to Prosperity," the research firm compares urban spending across major categories in 1995 versus the spending habits in cities in 2011.

In 1995, "a lion's share" of Chinese spending was on food; by 2011, this amount decreased to a third of total consumption. In 1995, the second biggest category was recreation, education and cultural, at 9.4 percent, and this increased to 12.2 percent 16 years later. However, in 2011, the second-biggest expense was transport and communication, as hundreds of thousands of migrant workers travel to see their families.

Clothing made up 13.5 percent of spending in 1995, and although the percentage spent in this category dropped by 2011, it still comprised 11 percent, which figures in "economic growth and the influx of global fashion brands and culture."

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To see what consumption spending might look like 12 years from now, Jefferies studied four decades of consumption patterns, spending behaviors and how the retail format has transformed not only in the Asian giant, but also in developed countries. The firm believes that the "Chinese economy is set to enter a 'post fast-growth' era where a consumption-driven model is facilitated by accelerated urbanization, enhanced social welfare and fast changes in lifestyle."

Specifically, spending on basic needs, such as food, clothing and housing, will continue to decline as a percentage of per capita consumption. Luxury goods, on the other hand, will likely "enjoy much faster growth" than other consumer goods, as residents become wealthier and have access to global fashion. Jefferies believes China's gifting culture along with its business network will be a "resilient platform" for luxury good demand.

As I pointed out last Friday, reforming the hukou registration system will likely have a tremendous influence on China's economy, and this is especially true in the consumer space. For the China Region Fund, we believe stocks in the consumer discretionary sector will profit from the increasing renminbi in residents' pockets.

Please consider carefully a fund's investment objectives, risks, charges and expenses. For this and other important information, obtain a fund prospectus by visiting usfunds.com or by calling 1-800-US-FUNDS (1-800-873-8637). Read it carefully before investing. Distributed by U.S. Global Brokerage, Inc.

Foreign and emerging market investing involves special risks such as currency fluctuation and less public disclosure, as well as economic and political risk. By investing in a specific geographic region, a regional fund's returns and share price may be more volatile than those of a less concentrated portfolio.