What Investors Can Expect if Strong Global Growth Continues
27 November 2020
Watch Time 6:51
Jenna Dagenhart: Joining us to share his outlook heading into 2021 is VanEck CEO Jan van Eck. Jan, despite the coronavirus pandemic that has parts of the world on lockdown, commodities are doing pretty well and global growth isn't as bad as a lot of people anticipated. What do you think is driving this?
Jan van Eck: Well, Jenna, I think it's really hard for people to grasp, given that we're kind of trapped in our homes, but the world economy has really been rocking, and we've been talking about this since the summer. What are you looking at? I'm looking at global business activity, PMIs. If you look at copper—oil prices are kind of manipulated—but copper prices are near four-year highs and have continued to rally through the last several months. And unemployment has really been decreasing in the U.S., which is a very, very positive sign.
Jan van Eck: Look, in a way it's not surprising given number one, huge mega stimulus from fiscal spending and central bank stimulus, lower interest rates, number one. And number two, the fact that the economy has been opening up in the later months of the summer. So, whether that changes or not is another question.
Jenna Dagenhart: Given these strides with the economy and markets, do you think that we'll see more upward pressure on interest rates going forward?
Jan van Eck: Well, I think looking into 2021, my phrase right now is: “Prepare to be disappointed.” You don't really have a lot of these themes working in your favor. One is the central bank stimulus of lower for longer, but if global growth—and I mentioned this in August—if global growth continues to be strong, then that might push up long-term interest rates, ten-year interest rates. Not dramatically, but even if we move from the 0.9% now to maybe 1.5% or 2%, that will not be happy days for the financial markets, meaning the stock and bond markets.
Jan van Eck: It won't be super negative, but it really won't be positive. So, I think we do have these two scenarios. One is its sort of goldilocks, lower for longer interest rates, financial assets continue to do fine. But secondly, not so goldilocks if economic growth is a little bit stronger going into 2021, putting slight pressure upwards on interest rates. And as I said, prepare to be disappointed.
Jenna Dagenhart: Not too optimistic heading into the New Year, but we'll be prepared. And if real interest rates do go up, how does that impact your outlook for gold?
Jan van Eck: Well, interest rates have really benefited from gold, lower real interest rates, and we focus on the real part. Nominal interest rates have come down, but because inflation is higher than that 0.9%, real rates are negative, and that's a dream scenario for gold. It's not the ripping scenario of the 1970s, when negative rates were -4%, -5%, but still -1% is good. But if interest rates start going up, if inflation doesn't go up with it, it will be not so great for gold.
Jan van Eck: It's possible that inflation does go up with a weaker dollar. We're not changing our overall bullish outlook on gold, but you do have a warning flag if in this not insignificant scenario, longer-term rates go up. Now the risk to that is rates don't go up in 2021 and that is, it could happen in 2022 or 2023. But if we economic growth continues, it's a risk that I think investors need to be aware of.
Jenna Dagenhart: And how are you monitoring different sectors given this potential for higher interest rates as well as a potential uptick in inflation? Financials, for example, finally seem to be getting a boost.
Jan van Eck: Right. Well, people love to talk about the growth versus value, and I'm not really even sure what value means anymore, because I think a lot of the measures of that, like price to book, are completely outdated. So, what I like to do is talk about sectors, and higher interest rates would definitely be good for the financials, which are part of the value trade, so to speak. But financials should do better if interest rates increase. I'm frankly not sure how they could be doing any worse.
Jan van Eck: So again, I wouldn't put all my money in financials, but they should be doing better. And obviously, if the world economy is doing better, then there should be some upward pressure on oil prices as well, which will help the beleaguered energy sector. Listen, both sectors have some long-term challenges, but overall, I think that equities, we should be fine, but a more balanced allocation.
Jan van Eck: What we talked about in the summer is growth, Tesla, and all that kind of stuff was just over done. And I think you've kind of seen the stock market reorganize itself. Smaller caps are doing better. Value’s having a little bit of a day in the sun. So that's all I'm really saying: have a balanced equity exposure and not something that's so hyper-growth oriented.
Jenna Dagenhart: And finally, how are you monitoring the election, and how do you think investors should be thinking about the election results?
Jan van Eck: Well, I think we knew that the [Federal Reserve] (Fed) was going to try to do lower for longer, so that wasn't going to change. I think on the fiscal policy front, it seems that the Senate hawks, if you will, who are worried about spending too much money will keep fiscal spending under control, and it's the reason we didn't have a spending deal before the election. So, if that's right, fiscal policy is likely to disappoint. And that's again, what I'm saying is be prepared to be disappointed that you don't have some of the tailwinds that we had at the end of 2020 here for the stock market.
Jenna Dagenhart: Well, Jan, great to have you. Thanks for joining us.
Jan van Eck: Oh, it's good to be here. Sorry it's not a rosier scenario, but I just think that people need to lower their expectations for 2021.
Jenna Dagenhart: Thank you for not sugarcoating it for us. And thank you for watching. That was VanEck CEO Jan van Eck, and I'm Jenna Dagenhart with Asset TV. To receive regular updates from VanEck experts, please visit vanEck.com/ucits/subscribe.