Fwd: Van Eck Rich

[Robert Kurlander]

Begin forwarded message:

From: ULU...@aol.com
Date: April 29, 2014 at 4:19:04 PM EDT
To: ulu...@aol.com
Subject: Van Eck                  Rich

Van Eck Hotline on Money and the Economy
For: Tuesday, April 29, 2014
(800) 219-1333.  VetHo...@aol.com.  www.vanecktillman.com

 

     Russian President Vladimir Putin continues to steer the Ship of State toward the rocks.  He has plenty of supporters.  Not only do many of the Russian people believe he is acting in their best interests, but citizens of other countries appear to be enamored with his USSR throwback actions.  I have noticed that the majority of Putin cheerleaders here in America tend to use the Ukraine storyline as an opportunity to criticize U.S. politicians (for their actions or lack of action).  Such political dissent has been common in America since before the Revolution and it will be here for many years to come.  However, I believe political rhetoric is skewing the views of Russia's continued illegal actions.  Russian diplomats recently met with their Western counterparts in Geneva.  Russia agreed to take actions to defuse the crisis in eastern Ukraine.  So far, Putin and others have failed to live up to the promises.  As you know, I believe Putin has already made some major errors in this process and it looks like he might drive Russia's economy right off the cliff this year - all in an effort to build up his image as a strong leader and to recapture some of the lost prestige and power of the Soviet Communist Empire.

 

     Last week, Standard & Poor's cut Russia's credit rating down to one notch above junk status.  Even before that event, Russia's economy was already hemorrhaging money as investors and businesses pulled billions of dollars out of the nation.  I wonder if Hitler would have balked back in the late 1930s regarding his plans to conquer much the world if his initial military forays into Sudetenland and Czechoslovakia had been met with capital flight and a credit rating downgrade.  Russia's economy was already in relatively weak shape before Putin began to rattle the West's cage with his power play in Crimea.  Now the blows to Russia's one-note (energy) economy are landing so fast that the damage will be felt for years to come.  Perhaps Putin's cheerleaders should take a moment to consider the true costs of absorbing a second chunk of a sovereign nation (Ukraine).  Crimea has a very large ethnic Russian population.  The region now in play in eastern Ukraine also has plenty of pro-Russian supporters that seem to believe that they would be better off under the political control of the heavy-handed Putin and his cronies (instead of a new government that would lean toward westernization).

 

     Protestors - with money, weapons and other support from Russia - have already stuck their collective foot through the door in eastern Ukraine.  Earlier today, a crowd of protestors seized control of a Ukrainian government building in Luhansk - a city that is less than 20 miles from the Russian border.  It is not hard to imagine that part of the country eventually following Crimea's path or at least grabbing far greater autonomy while still staying part of Ukraine.  We are not looking at the start of World War III.  However, this does seem to qualify as an echo of the Cold War and the process will likely remain in motion for many years to come.  In the end, the Russian government and the Russian people will be among the biggest losers of this meddling.  If the eastern Ukraine did not contain so much of the nation's industrial base, I doubt that Putin would be pushing the issue so hard and Kiev would likely be more willing to let it slip away to become part of Russia.  Looking at the recent sanctions from the West, Russia's economy is headed for trouble.  I wonder just how much financial pain Russian citizens would endure before they start protests of their own.  Pride is a powerful thing though, and sometimes people accept a lousy deal if it makes them feel like they are in control.

 

     An election in Ukraine is scheduled for May 25.  More likely than not, Putin's plan is to try and disrupt the election - perhaps delay it altogether.  The West is not going to let Russia gobble up another part of Ukraine without punishing the invaders.  The gold market has repeatedly tried to rally on fears of civil war in Ukraine.  So far though, those rally attempts have been a failure.  That is a sign that the marketplace does not sense a lasting escalation to the crisis.  The new government in Kiev has already said that eastern Ukraine might be allowed to leave the nation peacefully if the process is handled in a democratic way.  The sledgehammer approach being followed by Moscow reveals a lack of patience and a certain amount of contempt for leaders in the West.  With the exception of the energy supplies trump card, Russia has very little true power in this affair.  Its military might be able to dominate Ukraine's forces, but the combined might of the West would be far too much for Russia to handle.  Later this year, I expect this story to be on the backburner.  That would leave the U.S. economy and financial markets to follow their own path.  I expect them to hold their own as 2014 comes to an end.  The biggest threat to the U.S. bull market comes from the Fed - not Russia/Ukraine.

 

     Last week, I took some time to talk about inflationary pressures in America.  That subject opened up a can of worms - as a number of subscribers contacted our office in response to the hotline.  One of those subscribers is a real estate developer in Pennsylvania.  He is about to start construction on a new hotel - after completing two similar projects during the past few years.  Costs are important in every industry - but they tend to be especially important when it comes to large construction projects.  The subscriber reports that the third hotel is proving to be far more expensive than the previous two hotels.  By his estimate, the new hotel will cost 22 percent more to construct than the other recent ventures.  Building materials are seeing significant inflationary pressures compared to past years.  More importantly (for the broader economy), the builder reports that LABOR costs are moving higher as well.  After being lulled into complacency during the recession and its aftermath, many people believe that employment remains stuck in the mud.  The people that are actually working in the trenches of day-to-day business know that conditions are getting tighter.  When inflation finally breaks out to the upside in America - labor costs will lead the way.

 

     On Friday of this week, the Federal government will release the employment report for April.  Nonfarm payrolls are expected to post a net gain of about 200,000.  Private payrolls in America have already surpassed their pre-recession peak.  Soon enough, nonfarm payrolls (which include government employees) will also hit a new all-time high.  Even with the growth in GDP and the U.S. population during the past six-plus years, those milestones are impressive.  Some people will live in denial about the economic recovery for years to come if necessary.  Such cynicism has become an important part of their beliefs and they have no interest in admitting that they have been following the wrong trail for years on end.  There is plenty of evidence to confirm that the employment picture is improving.  The skeptics have tried to claim that all of the new jobs are just "burger flippers."  The actual data is telling a different story.  After years of struggling to regain some kind of balance, conditions are finally approaching a bullish tipping point.  Just about every day, I see or hear a commentary about how the American Dream is dead and that incomes will never recover their former vigor.  The bears can repeat that fib over and over if they want, but economic reality has a way of steamrolling critics right in the middle of uttering such emotion-packed warnings.

 

     The Labor Department recently released wage data for the first quarter.  During the January to March period, weekly wages increased by 2.7% from a year earlier.  That was the strongest rate since the fourth quarter of 2009.  I can just hear the skeptics now.  They would jump all over the fact that wages have only managed to recover back to a growth rate that was last seen six months after the last recession officially ended.  Well, every journey begins with one step.  In the case of an economic rebound from the worst financial crisis seen in America in generations, I prefer to focus on the big picture trends.  While a core group of analysts and investors continue to think and act like America is circling the drain, the truth is that the economy is slowly but surely healing.  Based on the data like the first quarter wage information - as well as anecdotal evidence from the real estate developer that I shared earlier - workers are poised for a better 2014 and 2015 as well.  That would be GREAT NEWS for consumer spending and housing.  That latter category has been smeared in the media of late - due to some weaker than expected sales reports.  During the second half of this year, I believe housing will be back to boosting the economy and setting the stage for stronger GDP and employment.  All of that will push the Fed toward a rate hike by the spring of 2015.  More next week.

 

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