I have been fortunate in my career to have met a number of investing legends. At the top of that list is Felix Zulauf.

Felix is an advisor to a fund that one of my office colleagues raises assets for. We were fortunate that Felix was in NYC yesterday briefly for a Barron’s conference (he has been a roundtable member for 20 years). Afterwards, he swung by the office and spent some time discussing the situation in Europe and elsewhere with us.

The highlights:

• We are on a spiral caused by mass credit creation, excessive borrowing, reckless spending, and a enormous credit crisis. The end result is inevitable, and most likely unavoidable.
• The Europeans have created their own credit crisis, and it is attributable, in part, to the creation of the EU. They EU is following a path similar to what the US went through n 2008-09.
• There will be yet another bailout in the US and QE3 (or more) — but not until the situation gets much worse; That refers to both the market and the economy.
• There was a window for an Austrian economics solution, but that opportunity has passed. Worse still, imposing Austrian economics on weak countries here and now will only make the situation worse, causing a recession or making any contraction worse.
• Equities remain in a long term secular bear market dating back to 2000, one that is unlikely to end before 2017.
• Multiples will compress over this time period. Look at more than P/E — consider Price to Sales as well.
• Of all the currencies in thew world, the US Dollar is the least ugly. That says less about the Greenback than it does about the Euro and Yen.
• The Eurozone was problematic since its inception. You cannot have a monetary union but not simultaneous fiscal union.
• Policy makers inevitably punish savers.
• Germany is the creditor to the rest of Europe. Given their history, their biggest concern is hyper inflation, while nations like Greece, Italy and Ireland are facing deflation
• Watch for rising populism in response to economic turmoil. It is already happening in Europe, and will eventually come to the US.
• The political situation in Europe is unlikely to improve until the crisis is much worse. The same is likely true in the US.
• There will be an eventual repricing of all currencies.
• Greece may very well will leave the Euro, but Italy is probably to big to do so.
• Countries that can print & devalue their own currencies get to invite tourists, stimulate economy, and climb out of their morass. Tied to the Euro, they simply cannot.
• There is no currency that will retain its value over the next decade except Gold. Every other currency is in a race to print and devalue, inflating away the debt.
• There is no price target on Gold, but he expects higher prices, and perhaps significantly higher prices over the next decade.

All told, a fascinating discussion.

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Previously:
Interview with Felix Zulauf

Transcript

Category: Bailouts, Currency, Investing, Politics, Valuation

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

30 Responses to “Felix Zulauf: The Die is Cast”

  1. Liminal Hack says:

    Sorry, I can’t see any earth shattering novel insights there…

  2. InterestedObserver says:

    On a quick skim, the highlights remind me of Ray Dalio’s recent interviews….

  3. Petey Wheatstraw says:

    The die is cast, but it hasn’t stopped rolling (complicating matters, and staying within the analogy, is the fact that it is bouncing towards some tightly-spaced and well aligned dominoes). It’s fairly easy to understand, broadly, what will happen with currencies, governments, or economies. The difficult prediction, as always, is when all of this will take place and what specific event(s) will initiate the final collapse.

  4. Chief Tomahawk says:

    Well, there wasn’t much positive in that. At least he wasn’t outright recommending guns to go with the gold (although sounds like the U.S. got a plug as the best bunker, er currency).

  5. paulie46 says:

    Zulaufs highlights are consistent with MMT insights, much more so than Ray Dalio’s which are somewhat out of paradigm.

    Most of the world’s (financial) pain could be alleviated within a year or so if policy-makers weren’t slaves to a religious belief in neo-liberal (supply-side) economics comparable to application of leeches or blood-letting as tools of treatment (or punishment).

  6. emcsull says:

    which one is you ?

  7. ” There will be another bailout and QE3 (or more) when the situation gets worse; That can be either in market terms or in economic terms.”
    ~~

    “and, You can Take that to the ‘Bank’ !”

    http://www.cartsandwagons.com/wheelbarrows/2777+2780.cfm
    ~~

    though, really, FWIW, I’ve, long, appreciated Zulauf (..he has been a roundtable member for 20 years..), esp. when there was that much more, in Barron’s, worth reading..

  8. dougc says:

    Don’t worry timmy and benny will come up with A SIV with a levarage of 1000 and backed with hot air that will solve all of the worlds monetary problems.

  9. Lugnut says:

    Hey laughing boy, no more bullets!

  10. dead hobo says:

    No, here’s what you have to do.

    Put it all in Netflix. It’s like Amazon or Google, only better. But save some for Groupon. Internet coupons are cool. Also, buy some Greek Debt now. You’ll never see 150%+ rates again. Especially since the banks are threatening to hold their breath until they turn blue if Germany doesn’t offer a trillion euro helping hand. Europe will puke as much needed to keep the banks happy. Look, it’s OK. Oil is on fire. It’s gone up a bunch over the past few days. This means the economy is running at full steam as oil is an exceptional concurrent and leading indicator for prosperity. S&P 1500 by Dec 1, which should bring Nymex to $100+ and even more prosperity to us all.

  11. louis says:

    So in the mean time run the market back up, get all the sheep to reinvest, then squash them like a bug and assure them space in the bread line.

  12. opensourcecurrency says:

    OT:

    Dylan Ratigan has been absolutely nailing it lately.

    Shocking to find a TV Host who sees through Wall Street’s game.

  13. emaij says:

    “There was a window for an Austrian economics solution, but that opportunity has passed. Worse still, imposing Austrian economics on weak countries here and now will only make the situation worse, causing a recession or making any contraction worse.”

    When he refers to a window for an Austrian economics solution, he’s really saying that the time has passed for capitalism to work. Is his point that we have now done too many bailouts and printed too much money and propped up too many failing people, sectors, and ideas for the markets to ever function again? Ultimately, what our leaders have done is rearrange the deck chairs… and made certain people wealthier at the expense of everyone else. So what happens in 2017 at the end of the secular bear? Is than when we can start weening ourselves off Freddie and Fannie? Sounds like he’s in the hair-of-the-dog camp now.

  14. toba says:

    Dead Hobo

    You’re always good for a laugh. That sounds like it was ripped from a Goldman investment adviser. :)

  15. klhoughton says:

    “Policy makers inevitably punish savers.”

    Uh, no. The problem is that, if S=I and I is done badly (German banks overfunding Irish property, French banks piling “investments” into Greece), the Savers must suffer.

    That they themselves did not make stupid Investments, but rather offered their funds to intermediaries who did such, is a difference that makes no difference.

  16. AHodge says:

    felix is the man but i have three q’s

    “austrian” ? if that means austerian cant go with that
    we needed anti austrian because finance was broken and “we” would not fix it
    you fix finance and then take what temp hit that might generate
    that way you wont need fiscal and monetary adrenaline and heart paddles

    and..is he actually out of market or short?
    in what he labels secular bear market till 2017
    he has been the best cycle guy around
    so what part are we in?

    not buying his gold scenario but who knows?

  17. AHodge says:

    meaning adrenaline and heart paddles forever
    or until your heart gives out .. the austrians will eventually be right

  18. NoKidding says:

    “Negotiators ask Greek debt holders to take 60% cut in face value of bonds ”

    This absolutely has to trigger CDS (assuming common sense that has long since evaporated).

  19. rj chicago says:

    If anyone is interested – go look up Luigi Barzini – he provided insight into the collapse of the EU before the EU was even known. Amazing man with amazing insights.

  20. rj chicago says:

    Try this as a foretaste of Barzini’s analysis. Enjoy!!!

    http://www.nytimes.com/1983/04/22/books/books-of-the-times-115727.html

  21. [...] Felix Zulauf, “Policy makers inevitably punish savers.”  (Big Picture) [...]

  22. Dow says:

    “Negotiators ask Greek debt holders to take 60% cut in face value of bonds ”

    This absolutely has to trigger CDS (assuming common sense that has long since evaporated).

    Cui bono?

  23. BlueScorpion says:

    Felix the Cat is a very smart dude. Sobering views. I’ll bet that by focusing on “the big picture”, he doesn’t get bogged down in thoughts like whether gold is a trade or a religion. ;-)

  24. VennData says:

    “…Countries that can print & devalue their own currencies get to invite tourists, stimulate economy, and climb out of their morass. Tied to the Euro, they simply cannot…”

    Sure they can. When wages stagnate or are cut, prices and rents decline countries become more competitive. Think of the differences with in the US between the cities and the rural areas. The euro area will have the same thing happen, it just doesn’t happen as quickly.

  25. Long term says:

    What a dense, fun read. You made me feel like I was at the table. Thanks for typing this into notes, BR.

    I agree with every point/assertion listed.

  26. 873450 says:

    “Of all the currencies in thew world, the US Dollar is the least ugly. That says less about the Greenback than it does about the Euro and Yen.”

    That sounds like President Obama’s re-election strategy: An overwhelming majority of Americans are not being served well by my unforeseen, ineffective governance and exasperating failure to confront Wall Street’s banking industry. But their alternative is worse.

  27. Fredex says:

    We are looking at a giant roach motel run by, uh, giant roaches. They know they are stuck. They intend to take everyone down with them.

  28. [...] Felix Zulauf: The Die is Cast – Barry [...]

  29. RyanSzabo says:

    I’m disappointed by the lack of video! You could have recorded the convo in 1080p hd with an iphone. Simple upload to the youtubes after that. Was Felix camera shy that day? It would have been a great breathe of fresh air to hear Felix rather than the typical CNBC blather. Some of us are on islands of dumb in need of a periodic drink from the oasis of logic and careful analysis.