Commodities Rock as Related Investments Remain Attractive

Jenna Dagenhart: Joining us now with his 2022 outlook and top themes to watch for investors as we head into the New Year is VanEck CEO Jan van Eck. Jan, it's great to have you back with us, and it's hard to believe 2021 is coming to an end. And at the beginning of the year, you were already saying it was time for the inflation trade; since then, it's only gotten harder for anyone to say inflation is transitory. What are your current views on inflation and what investors can expect in 2022?

Jan van Eck: Jen, it's good to see you. Listen, I think there's two things: there's reality, and then there's the market reaction to reality. So, let's talk about reality first. The world economy came into 2021 like a car going 200 miles an hour. It was fueled by the biggest stimulus we'd gotten since World War II. So the only question was, were we going to be able to slow down in a reasonable pace without crashing? Or was something bad going to happen? I don't think we know the inflation answer and we won't know until the second half of last year [2020], next year [2022], sorry. Let me just explain that for a second. First of all, last year we were thinking about inflation and the technologists were saying, "Oh, we live in a deflationary world because there's all this technology. And who needs people for jobs when there's all this technology?"

Jan van Eck: And I think we realized that that's not really the case. With COVID, let's just take, for example, we've got great technology, we've got the vaccines, we've got all this testing, but there's a lot of jobs associated with that particular activity. So, when I look at inflation, I think of wages and we really won't know until the second half of 2022, so that's the reality portion. I will say that right now, the market is dealing with the uncertainty of this, and it doesn't like uncertainty. But I think we can go into 2022 with this cautious outlook that we won't, unfortunately, know the answer about inflation until the second half of next year.

Jenna Dagenhart: And the Fed will also be monitoring wages very closely. Looking at monetary policy, Jan, as the Fed dials back its stimulus and forecasts three rate hikes in 2022, how do you expect the market to react and how can investors prepare their portfolios?

Jan van Eck: Well, unfortunately, the Fed is sort of the cause of the uncertainty and, like I said before, markets really don't like uncertainty. We've got several causes of uncertainty. We've got China, which their economy is really slowed down, so will they stimulate enough in 2022 to make sure that they're going to keep being a driver of global growth? The Fed is also the other part of uncertainty and that's what has investors really nervous. For our car that's slowing down, investors are asking, is the Fed going to hit breaks too hard? What is it like to raise interest rates and reduce the stimulus, increase the tapering? The punch bowl - they're taking away a punch bowl that's never been as big, and, arguably, they haven't really taken the punch bowl away since the global financial crisis, maybe 2018 aside.

Jan van Eck: So there's uncertainty, the investors, don't like the uncertainty around Fed action and inflation. Now having said all that, I think the markets are really correcting. There's a lot of damage done to stocks underneath it, the top index of the S&P 500. So short-term, I'm looking for this to continue, but then maybe we have an upside January surprise because I really don't think the Fed wants to put the brakes on too hard. And if the market really starts seizing up on itself, I think suddenly you'll have some positive Fed statements and the markets will stage a relief for rally. So, I know that's a little complicated, but we have to work through some of this uncertainty and I'm optimistic, kind of, earlier in the year.

Jenna Dagenhart: Per your analogy about hitting the brakes too hard, too, with a bicycle, you'll flip over if you do that too quickly.

Jan van Eck: Exactly.

Jenna Dagenhart: And now looking at some of the top performers here, Jan, energy and crypto have been two of the best performing assets in 2021. What have been the key drivers for this and will this continue in 2022?

Jan van Eck: Right. Well, as this kind of fourth quarter started, what we were saying to investors is, listen, the market's pretty extended, but start thinking about multi-year investment trends and take your opportunities as they present themselves. So, one is the disruption that's happening through blockchain and crypto, which we've been talking about for a while. The issue is that growth investments were really richly valued. And so, what we said is dollar-cost average in. On the extreme side, the other side was energy investments, resource equities in particular, which we were very excited about. But on the other side, we've been through a 10-year bear market in commodities, and every time you wanted to buy commodities, except for maybe the last six months, there was some correction and you got penalized. And again, our sort of feeling is dollar-cost average. There is a lot of demand for ESG friendly resources, and we don't see that going away despite the recent setback of the Build Back Better program, which had a lot of climate spending in it. So still focus on those trends. They're kind of hard to invest in, so dollar-cost average over time. Don't do it all at once.

Jenna Dagenhart: You've called 2021 the year of smart contracts. How is this space evolving and what'll be the focus in 2022?

Jan van Eck: Right. So smart contracts in the world of the blockchain are the kind of base level, let's call it the database software on which other applications are functioning. So, whether it's NFTs or decentralized financial applications, borrowing and lending, payments in the crypto system, they all choose one database technology or another. Ethereum is the most famous. Solana has performed really well this year. That category of digital asset tokens has been the best performing this year. To oversimplify, Ethereum has outperformed Bitcoin and every other major, significant investment. I actually think that will continue next year. That is where you're seeing trillions of dollars of economic activity, millions of transactions on these smart contract databases. And we just think that that use will continue and that will translate through to prices as well. We think that's kind of accessing the blockchain and that's the space that we're most interested as a firm.

Jenna Dagenhart: Finally, Jan, before I let you go, we're coming up on a rare, but quiet week for the markets. What should we be reading on our holiday break?

Jan van Eck: Well, my favorite read really over the year, and I've talked about a lot, is Bill Gates' book on climate change. I think it just... I read it over the summer. I like to say it's at the high school level, which is perfect for me. You can really get lost in a lot of the data and a lot of the assumptions and the discussion of climate change. But my takeaways, I just think, are really, really important for investors when they're considering ESG and their portfolio in general, which is how are we going to get to a net neutral carbon world? And I just don't think it's going to be through spending more on existing technologies. We really need, like happened with COVID, breakthrough technologies and the private sector to really commercialize those and popularize them so that they ultimately have a cost advantage, sort of what Elon Musk has done with the Tesla cheaper version. So anyway, that's my favorite read. And, I guess, I finally got around to Ted Lasso this fall, which was kind of a happy show, which is always good during the holidays.

Jenna Dagenhart: Yeah. Well, happy holidays, Jan, and great to have you.

Jan van Eck: Thanks, Jen. Happy New Year to you.

Jenna Dagenhart: And thank you to everyone watching. Once again, that was VanEck CEO Jan van Eck. To receive regular updates from VanEck's experts, please visit vaneck.com/subscribe.

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