Van Eck On Money, The Economy, And Markets. December 30, 2013

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Van Eck Hotline on Money and the Economy

For: Monday, December 30, 2013
(800) 219-1333.

After a volatile year for the markets and the economy, things are winding down quietly this week. The bulls defied the odds – taking stocks to new all-time highs, despite some disappointing action in corporate earnings and anemic patches for the economy. This is the time of year when commentators like to look ahead to the next calendar year. For the most part, the bulls are salivating at the thought of more upside during 2014. I have been far more bullish on the economy during the past few years than the average analyst. Looking out to 2014, I believe the pieces are in place for the economy to continue defying the skeptics. While the Fed will continue to drain the punch bowl during the months ahead, the central bank will keep short-term interest rates low and adjust other policy measures if things take a turn for the worse. A year ago, it was quite popular to predict a new recession for 2013. The fiscal cliff tax hikes were widely seen as recovery killers. Some of the loudest bulls on Wall Street these days were among the recession crowd a year ago. It is amazing what a sustained uptrend in the stock market can accomplish when it comes to perceptions in the financial community.

I am looking forward to 2014. We will have a new leader at the Federal Reserve. Back in early May of this year – some eight months ago – I declared Janet Yellen to be my top choice for the job. For a while, it looked like the White House was going to fumble the ball and go with the ultimate insider (Larry Summers). Thankfully, Summers took himself out of the running, once he realized that he would face heavy criticism from Senators during the approval process. I believe Yellen is uniquely qualified to finish the job that Bernanke started back in 2008. There have been endless predictions about how Fed stimulus measures would spark hyperinflation and crush the U.S. dollar. So far, such criticisms have been an utter failure. Those Fed critics failed to understand the roles of global competition and excess capacity in the U.S. economy. The economy still has a long way to go before things return to what I would call normal conditions. Employment in particular has yet to reach levels that will smooth the way for the middle and lower classes in this nation. Yellen is going to keep liquidity moving into the system during the months ahead as she tries to help the economy build on the recovery to date.

All the talk in recent years about the end of the American Dream has reminded me of the malaise that dominated the discussion back in the late 1970s and early 1980s. One of the big surprises this year has been the way that the manufacturing sector has been able to hold its own. After spending most of 2013 running in place, manufacturing employment has come on strong in recent months. That sector has added a net 63,000 jobs this year (through November). That is a relatively small bite of the net gain of 2.07 million jobs in nonfarm payrolls. Thanks to the gains seen in recent months, total employment in manufacturing has clawed its way back to where it was in April 2009. Let’s face it, things were not looking too good back then – seeing as that was just a month after the stock market hit its crash low and the economy was on the verge of hitting a low for the recession. Manufacturing still has tremendous upside potential. I expect the sector to provide a bigger boost to economic growth and employment during the year ahead. Long-term interest rates have been moving higher this year as Fed tapering has been priced into the bond market. The yield on the 10-year note just hit 3.00%. Some of the skeptics are hoping that higher rates will put a halt to the recovery in housing. I have been among the biggest housing bulls in recent years. Betting against that part of the economy – even with higher rates – would be a mistake. More on Thursday morning.

Next hotline will be updated no later than 12:00 P.M. Eastern on Thursday, January 2, 2014


Category: Economics, Markets and Trading