Health, Happiness, and Higher Rates

TOM BUTCHER: After much anticipation, the Federal Reserve (Fed) announced that it is raising short-term interest rates for the first time in nearly a decade. Jan, it looks as if we are wishing our clients health, happiness, and now higher rates this holiday season.

JAN VAN ECK: I think it is indeed a reason to celebrate because I think the Fed is saying that the U.S. economy is strong enough to withstand a normalization of monetary policy. It started a year ago with a roll-off of QE3, i.e., the third round of quantitative easing. Now it seems that the Fed is comfortable enough with U.S. labor statistics and the global economic situation, which had caused the Fed to delay this rate hike a couple of times in 2015. First, I think turbulence in Europe and the strengthening U.S. dollar against the euro concerned the Fed; then came [stock market] turbulence in China over the summer. Now there is reason to celebrate and things are relatively good.

The question is: What are the implications of the rate hike on our asset classes? I think there are few direct implications. With respect to commodities, there is still much consolidation that needs to wipe through the markets, and if a normal cycle is upon us, commodities should bottom in the first quarter of 2016 [see 11/25 post]. We think that this process will continue largely unaffected by the Fed's rate hike.

Additionally, growth is slow in the developed markets and China is slowing; global growth has been weak for two years now. There are many headwinds, and we think these trends will persist as well.

What gets us excited for 2016 is what we call growth spots, meaning sectors in different countries that may grow 20% or more, regardless of whether global growth is only 2%. That’s how we are looking at 2016, and the Fed's interest rate hike doesn't really impact that outlook.

BUTCHER: Thank you very much.