With volatility continuing to whipsaw the market, CEO Jan van Eck joined the Howard Lindzon podcast to discuss what investors should expect in the coming quarters. The conversation centered on three key points, with Jan using a historical lens to explain the current market environment and the likely path forward:
- Studying history is valuable because many of the problems we face today have been experienced before, especially from a policy perspective (8:00)
- The connection between the current market environment and the 1970s, and the reasons why Jan thinks bonds will outperform (12:15)
- Investors should brace themselves for an extended period of rising and falling inflation, with a mean level significantly above the Fed’s 2% target (19:25)
What the 1970s Can Teach Us About the Future Path for Bonds
When interest rates are low, an increase in rates usually does a lot of damage to bonds, which is what we’ve seen so far this year. 2022 has been the worst year for bonds since 1976. Looking at the latter half of the 1970s, however, rates increased from 5% to 10%, yet bonds kept making money.
There are two reasons for this. First, an increase in interest rates from 5% to 6% is much less dramatic than a move from 1% to 2%. Second, if you’re getting paid a coupon of 6–7% and you reinvest it, that has a tremendous compounding effect. Based on this, we think bonds are an attractive place to be.
Don’t Expect Current Market Conditions to Change Anytime Soon
There are three things investors are currently facing:
- Monetary policy is tight.
- Fiscal policy is tightening and unlikely to be stimulative.
- We’re in a major global slowdown, if not a global recession.
These conditions are going to be sticking around for a while, and what the markets are looking at now is the pressure on corporate profitability. Stocks are down because the P/E ratios are down, but earnings are still flat. We don’t know yet what earnings will be like, so there will be a lot of information for equity investors to gather over the next few quarters.
Monetary and fiscal policy, as well as global growth, are all contractionary. However, we favor fixed income—based on guidance from the 1970s—and commodity equities, which are very attractively priced and poised for growth.
Other highlights include:
- Current labor market dynamics (23:10)
- The outlook for crypto and digital assets (29:00)
- Bitcoin vs. gold (33:00)
You can listen to the full podcast here: Panic with Friends – Howard Lindzon: Jan van Eck of VanEck Funds on Global Markets, Deglobalization, and Rising Interest Rates on Apple Podcasts.
Originally published by VanEck on November 21, 2022.
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