David Gura: We just heard that active investments will have a better environment in 2017. That's not stopping investors from putting money into ETFs. More than $46 billion went into U.S. ETFs in January and that adds up to $154 billion since November. Joining us now to discuss this is Jan van Eck, CEO of VanEck. And Jan, all of these flows since the election, let me start by just having you respond to that chart what was just showed to us and what that tells us about what we've been seeing in ETFs here recently.
Jan Van Eck: I like to look at longer-term charts. VanEck has been around for 60 years, and if you pull that chart back and have a longer-term view, gold shares had suffered a 90 percent decline through December 2015. So if a stock goes from 10 to 1, when it bounces from 1 to 1.50 or 2, that doesn't really get us tremendously excited. But I think this year the new reality as opposed to a year ago is inflation. It's only 2%, but it's on people's radar screen. A year ago, people worried about economic slowdown, China, all that kind of stuff. We weren't worried about inflation. I don't think inflation is an issue now, but the thought that it might be a concern gives gold a little bit more attention.
Vonnie Quinn: We're talking about moves, but they might be psychologically more important than actual numerically, if you like. We went past $1,200 an ounce for gold. How big of a deal is that really for miners?
Van Eck: Technicals, as your commentator said, really do matter to many investors and I think they do reflect psychology and behavior. I think 1,200 is a good number to get over. I think the gold really though is trading with interest rates until you had this big change last year, this move, I think collectively around the world away from negative rates, and now we're in this environment of trying to figure out what the new normal is for the bond markets. I think gold is very much looking at interest rates. When you see growth peter off and interest rates come down then gold is having a better day like it is today.
Gura: All right. That's the outlook for gold. How about other commodities? What else is interesting to you or are you optimistic about here in 2017?
Van Eck: Looking back to 2016, you had the five-year bear market that ended last year. Your typical commodities market lasts three years, so there is no reason to think that this is atypical. What's really exciting about this market is commodity equities. In the 1970s, the huge commodity market was also accompanied by great profits by the companies because their costs didn't go up, so profits exploded. Last decade, prices went up, but costs went up, so the companies didn't really have a great party. This cycle, there's a lot of cost discipline. So even though it might be a three-year move and not an eight-year move, I think it could be very exciting for the mining companies and energy companies, because supply is being controlled.
Quinn: Then there's the unusual ones, like for example RSX, the VanEck Vectors Russia ETF. Talk to us about demand there. I mean, we're seeing, well actually, we can dig into the terminal and have a look at it yourself, see where we are at. It's really kind of at a multi-year high at this point.
Van Eck: Right. Well, we've renamed the ETF called the "Trump Trade" ETF. I think obviously there was a lot of pro-Russia sentiment after the election and about half a billion dollars came into the fund on the back of that. You could talk about the fundamentals really aligning at the same time, meaning they had a big devaluation in the currency, Russia did the right things, and so it was set to rebound, but yes, it's a good longer term story. Valuations are still attractive.
Gura: There are indications that the recession may be ending there in Russia. What's the role of central banking now? We had a week in which Bank of Japan met, the Bank of England met, the Federal Reserve Bank met as well. When you weigh that against all the politics we're seeing, does one carry more weight than the other to you, as an investor?
Van Eck: Big picture, I think there was this mass insanity by central banks over the last several years where they thought that negative interest rates were stimulative, and every private economist said "what are you talking about". No one understands what negative interest rates are and when you earn less on your money -- why would they get me more excited about investing in my business or as a consumer spending more money. And the Fed in the second quarter of last year even started talking about negative interest rates - were they legal or not. All that stuff is gone. That is history.
Gura: That conversation is over.
Van Eck: The Fed started tapering two years ago. European Central Bank, whatever it's doing is effectively starting its taper. So all of that is now more rearview mirror stuff and that's why interest rates are a new old normal.
Quinn: So where in the world do you think investors will turn their attention now? I mean, maybe it's a little too volatile at the moment here for some investors. Where should they go for a little more calm?
Van Eck: Given what I said about interest rates, we think investors need to think about interest rate risk. And what we like is high yield, emerging markets high yield, U.S. high yield, because we're bullish on the equity markets. I know there's all this political noise out there, but overall equity earnings should do okay. That's sort of what the market is expecting, assuming that we get the fiscal policies that the market is expecting. High yield is a nice place to suffer a little bit with higher rates. But you get paid for that.
Quinn: But it's had its run. What's the argument that it should continue to pay back?
Van Eck: That rates continue to go higher?
Quinn: Yes. High yield continues to.
Van Eck: High yield. You're not going to have the huge rally that you had last year because last year everyone thought every energy company was going bankrupt and that was destroying the high yield market. I agree with you. My argument isn't that you will get a lot of appreciation, but you're carrying, if you're clipping 6% coupons and if your duration risk may cost you 3% or 4% you're still net in the black at the end of the year. I agree that's not the most exciting trade one could imagine. But if you're a fixed income investor, you're not really looking for excitement, you're just looking to make positive real returns.
Gura: Help us with the news of the day. A lot of meetings at the White House centering on trade and we've seen the contours of a Trump trade policy focused here these last few days. How does that complicate an investor strategy and that does sort of align with any ETFs in particular?
Van Eck: The asset class that's gotten rocked by all of this is the emerging markets and they're most vulnerable, so Mexican currency and then what happens in China. I personally like to look at China because it's such a huge contributor to global growth and whatever happens to Mexico, that's really important for the U.S., but China also ripples through a lot of other markets. And I think it's a question of you have the "Old China" with a huge capacity in steel and aluminum, and things like that, and the "New China," Alibaba, the tech story. And I think how they straighten out, there's been an explosion in steel production out in China. I think it's got to adjust.
Quinn: Wilbur Ross now is embarking on a 90-day period to reform North American Free Trade Agreement. This is what Donald Trump says he's going to do anyway, the president. What about China? Does that come next and I mean, if China is labeled something like a currency manipulator, does that really impact trade?
Van Eck: I could be completely wrong, but China has a big leadership change or election, or change in the polit bureau, in October. So from a negotiating perspective, it might be easier for the Chinese to do a deal after that, after that's settled. So it could be that we deal with Mexico first and then China later. I don't know. Who knows? That's completely a wild guess. But I think there has to be something where China buys more of our stuff. It's sort of like Reagan did the deal of voluntary export restraints with Japan and that was a quid pro quo. They moved their auto plants to the U.S. and kind of solved that problem. That program, you can't do per se, but I think something, that kind of a deal, the question is "what's the good time for Xi Jinping to cut a deal". Donald Trump is ready today.
Gura: Thank you very much. Appreciate it.
Van Eck: Thank you, David.
Gura: VAN ECK, the CEO of VanEck joining us here in New York.
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