Visitor: Felix Zulauf is the founder and CEO of Zulauf Consulting, a boutique analysis and consulting agency.
Recorded: 12/14/2023 | Run-Time: 49:41 
Abstract: In at present’s episode, Felix shares his view of the worldwide funding panorama from Asia to Europe to the US. He shares why the tailwinds of decrease inflation might reverse and lead inflation to rise above 10%. He additionally touches on the state of gold, the Greenback and different currencies, and why he’s centered on the upcoming election in Taiwan.
Feedback or recommendations? Focused on sponsoring an episode? E mail us Suggestions@TheMebFaberShow.com
Hyperlinks from the Episode:
- 1:23 – Welcome Felix to the present
- 2:14 – What the world appears like as 2023 winds down
- 3:30 – Why China is just not enthusiastic about excessive progress
- 11:45 – How the Taiwanese election would possibly have an effect on markets
- 15:15 – Worth disconnect between the US & the remainder of the world
- 16:38 – Historic parallels to the market surroundings at present
- 17:38 – Ideas on mounted revenue and inflation
- 22:17 – Gold
- 25:20 – The US greenback and different currencies
- 31:21 – What’s going to greatest shock in 2024?
- 33:36 – One thing Felix believes that of most his friends don’t
- 38:01 – Felix’s most memorable funding
- Study extra about Felix : FelixZulauf.com
Transcript:
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Disclaimer:
Meb Faber is the co-founder and chief funding officer at Cambria Funding Administration. Attributable to trade rules, he won’t focus on any of Cambria’s funds on this podcast. All opinions expressed by podcast contributors are solely their very own opinions and don’t mirror the opinion of Cambria Funding Administration or its associates. For extra info, go to cambriainvestments.com.
Meb:
Hiya, my mates. We obtained an episode at present. I’ve been wanting ahead to this dialog for a protracted, very long time. Excited to share our chat with well-known macro skilled Felix Zulauf, founding father of Zulauf Consulting. He was beforehand the worldwide strategist for UBS and later ran his personal asset administration agency.
In at present’s episode, Felix shares his view of the worldwide funding panorama from Asia to Europe to the US. He shares why the tailwinds of decrease inflation might reverse and lead inflation to rise above 10%. He additionally touches on the state of gold, the greenback and different currencies and why he’s centered on the upcoming election in Taiwan. Please take pleasure in this episode with Felix Zulauf. Felix, welcome to indicate.
Felix:
My pleasure. Thanks for having me, Meb.
Meb:
I’m so excited to have you ever. I’ve been wanting to speak to you for a very long time. The place do we discover you this morning? This night?
Felix:
Yeah, it’s early night in Switzerland, simply again from my place in Florida. Change to colder climate.
Meb:
Effectively, it’s at all times been a problem for me to regulate to California through the holidays, seeing a bunch of lights and bushes out on a pier within the ocean the place it’s 70 levels versus Colorado the place we’d nonetheless be going to highschool in a foot of snow. I’m not complaining as a result of it may be fairly good going browsing in December and January, however Switzerland seems like a magical time this time of 12 months.
Felix:
I’m unsure it’s. Now we have no snow proper now down within the cities, so it could be good to have snow over Christmas time.
Meb:
So we’re going to bounce all all over the world this chat. Why don’t we get began together with your perch from over there in Switzerland, views of the worldwide economic system, what’s happening? There’s been some macro forces, lots of people wringing their arms this 12 months about potential recessions. And I believe everybody retains ready for one to return and right here within the US and it simply looks like it’s at all times within the horizon. What’s the world appear like to you at present as we wind down 2023?
Felix:
Now we have three areas in very totally different standing. Now we have China that’s type of weakish. It has misplaced its momentum. It has to digest the overhang from the actual property growth and the credit score growth and that may take at the very least 10 years if not longer. So China won’t be a locomotive to the world economic system for a lot of, a few years.
China is attempting to handle by this and the restructure step-by-step, present stimulus to assist however not stimulus to progress. It’s not on the Chinese language agenda to create excessive progress. Respectable progress, three, 4 % is nice sufficient for them and in actuality, three or 4 % what they publish might be one to 2 %, no more than that.
Meb:
And are you choosing that up from type of what they’ve been saying is the perception quite from simply indicators you’re taking a look at? What makes you come to type of that perception as you look to the far East?
Felix:
I’ve mentioned that for a few years. Once I noticed the overhang from building growth, actual property growth, the credit score growth, as soon as that’s over, the overhang is super. And give it some thought, the US has what? 140 million models of house in the entire us. The overhang of empty houses in China is about 100 million. In order that’s so much to digest and sadly they don’t have a inhabitants that’s rising.
It’s really shrinking barely, however it should speed up the shrinking over time. So there isn’t a method they’ll develop out of the issue. That’s unimaginable. Subsequently, they should restructure, they should take the write-offs and ultimately they should recapitalize the native governments, that are the massive gamers in that they usually should recapitalize the banking trade they usually should monetize a whole lot of the debt.
However they’ll solely achieve this as soon as the western world is on the level to take action additionally, as a result of now we have our issues, structural issues as effectively. And I believe that may solely come within the second half of the 20s. However we’ll run into a serious disaster in a number of years’ time, fiscal disaster, et cetera, after which we’ll attempt to stimulate out of it. And as soon as the western world stimulates, the Chinese language will achieve this.
Lately, in opposition to the expectation of a lot of the specialists China tighten financial coverage, which the western world didn’t perceive, however they did so to guard their forex. They didn’t need their forex to go down and break down badly. They wish to preserve the whole lot in stability till 2024 after we most likely have a recession within the US and central financial institution will start to chop charges and the pump liquidity into the system. Then they’ll do it additionally, however in any other case it could harm them.
Then now we have Europe. Europe is the massive loser on this entire sport of rivalry and new association of world order. Europe is weak, it has no military to talk of that may defend its personal territory they usually don’t have any saying on the planet actually. Economically they’ve been sturdy, it’s an enormous market, however all of them rely on China for exports and US for exports and US on protection and they’re going to come out very weak.
The economic system is struggling notably in these areas the place they attempt to go inexperienced and the off gas led vitality and nuclear vitality like Germany that’s very weak. They’re destroying the German economic system really. Different components are doing a bit bit higher. Spain is doing very effectively. Italy has now outperformed Germany I believe for nearly 4 years.
So internet I’d say Europe is type of stagnating borderline to recession. And if the US goes into recession, we’ll most likely additionally go into recession and the recession will deepen considerably. The US is the odd man. It has been the strongest economic system, supplied some huge cash to the folks to spend. And that fiscal assist helped in fact. And I believe the tightening during the last 12 months and a half or so will ultimately be felt throughout 2024.
However the consensus of a smooth touchdown may be very pronounced. And what I’ve discovered in my profession is when you may have such a pronounced consensus and all of the specialists and forecasts agree, one thing else goes to occur. So I believe the economic system will first be a bit bit stronger than anticipated after which weaker than anticipated and fall into recession. And that ought to harm the company earnings.
Let’s say it’s going to be a light recession as a result of we don’t have an enormous stock overhang or something of that kind. That would imply that company income let’s say go down 10%. It may go down extra however let’s say gentle 10%. Often in a recession they go down 25%. And you are taking a backside, a bear market backside, a a number of of 16, you arrive at about 3,500.
That’s not what folks take note of after they enter the market nowadays. And truly the market has some technical points which might be very harmful. And I’m referring to the super focus of shares. Focus of shares that carry out very effectively and are the beneficiaries of weak inflows of cash on the way in which up can pull the market index up dramatically as achieved this 12 months.
The 493 shares didn’t in addition to the Magnificent Seven, however take into account that while you spend money on a passive method and also you index or while you spend money on an lively method and also you do closet indexing as most guys are doing, then you find yourself with most likely 80% of the fairness invested worldwide is benchmarked. And that signifies that in the event you spend money on a world index, virtually two thirds of the cash flows into the US market and out of that cash one third flows into seven shares.
So you may have a focus like by no means earlier than on the planet. And that was very good on the way in which up. I believe it should exaggerate the transfer on the way in which down. So when a correction comes, when managers are hit with redemptions, after they have to lift money, et cetera, they should promote what they personal an excessive amount of of and people are the heavyweights of the Magnificent Seven as a result of in the event you needed to outperform, you needed to obese these Magnificent Seven, in any other case you might be achieved.
And I not too long ago learn a report that mentioned the massive hedge funds within the US have 70% of their equities in 10 positions. I’m unsure whether or not that’s true or not, however I may think about it’s. And if that’s true and the marketplace for no matter cause turns down, then you definitely get the transfer down that will get exaggerated and has nothing to do with the actual economic system. Individuals don’t perceive that because the transfer up right here doesn’t have a lot to do with the actual economic system.
Meb:
Man, Felix, you touched on so much there, so we’re going to dive into a number of issues. The primary, I used to be laughing as you have been speaking about Italy as a result of certainly one of my favourite issues to do after I go on TV is I ask my son, he’s six. I say, “You bought to offer me a phrase to work into the interview as a problem and so that you just’ll watch it and make it enjoyable for me, as a result of in any other case I get bored speaking about a few of the stuff that’s the day by day matter.”
And I believed he lastly defeated me this time as a result of in years previous it was phrases like “Ninja” or “Blah blah blah” or a meme and this time it was “Mama Mia.” And I’m like, “There’s no method on stay TV I can work in Mama Mia.” However Italian shares have been having an amazing 12 months and so I believed I couldn’t do it however I used to be capable of squeeze it in. I don’t suppose anybody perceive what I used to be speaking about, however I had an viewers of 1 so I lastly made it.
Okay, so there’s a handful of issues that I’d like to get into. We’re going to get again to the Magnificent Seven in a minute, however one of many issues I’ve seen you write about as we’re speaking about type of geopolitics, everyone seems to be so centered within the macro world at all times on the massive occasions, what’s happening in Ukraine, what’s happening in Israel, elections, we obtained one arising within the US subsequent 12 months, Argentina. However the one which I’ve seen you write so much about is the significance of the Taiwanese election. Perhaps discuss a bit bit about how that could be an necessary function or an necessary level within the subsequent few years so far as geopolitics and macro and markets.
Felix:
The Taiwanese are additionally Chinese language initially. And I believe China and Taiwan over the long run will unite and get collectively. It’s pure. After all the US is utilizing Taiwan as a provocation to China as they used Ukraine as a provocation to Russia. And I believe if the US would sit quiet relating to Taiwan, there wouldn’t be an issue and we wouldn’t discuss it and Xi wouldn’t have made the error of claiming we wish to combine Taiwan inside the subsequent 5 years.
That was an enormous mistake. It shouldn’t have put a time restrict on that. In Taiwan you may have individuals who favor getting nearer with China and you’ve got others which might be in opposition to it. And on January thirteenth there may be the subsequent election and you’ve got two opposition events that collectively within the polls have 53% which might be in favor of getting nearer with China. Not integrating utterly however getting nearer with China.
Sadly the 2 couldn’t determine to make use of only one candidate. So there are two candidates and actually to make it work for them, one candidate near election time has to endorse the opposite one to make it occur after which they might win the elections. I hoped that Xi or China would lean on these two events to a point to make it occur. Now we have to attend for the result, however you even have to grasp that about 10% of the Taiwanese workforce already lively in China.
They work there and the specialists and the engineers from semiconductor firms, Taiwanese semiconductors, they’re additionally working in China. And although I believe the trade of know-how goes each methods they usually commerce and they’re pleasant, in fact the Chinese language are sometimes aggressive with their army maneuvers et cetera. However I don’t see a battle arising there.
I believe that might be unhealthy. I believe the Taiwanese working in China are telling their folks again house they’re handled very effectively, they make a very good dwelling, the whole lot is ok. And over time, if no person would provoke, over time the 2 would get nearer collectively. The Taiwanese by the way in which, every time they made a brand new innovation or new chip or in order that they at all times gave China a 3 to 4 months lead over others to maintain them blissful.
Meb:
Effectively, it’s attention-grabbing, we have been speaking about this the opposite day with any person the place everyone seems to be so excited and scorching bothered about a whole lot of the American giant tech. And notably while you’re speaking about investments in shares, American semiconductor firms.
And in the event you look in Taiwan and elsewhere, South Korea particularly, there occurs to be a whole lot of semiconductor firms, additionally ones that commerce at a a lot bigger valuation low cost than a few of the ones in the USA do, together with a number of which have been two, three baggers this 12 months alone.
It’s at all times attention-grabbing to see the worth disconnect, which we’ve been speaking about for fairly a very long time, US versus the remainder of the world. I don’t know if there’ll ever be a catalyst for this to shut, but it surely looks like a complete investing profession at this level.
Felix:
No, I believe the catalyst might be when the Magnificent Seven decline, that would be the set off. After which you’ll have possibly one other yet another cycle the place the US outperforms and that ought to be it.
As a result of then the world order will get rearranged and the US dominance is in decline. And I believe capital might then go to different locations as soon as the whole lot is settled out and now we have a brand new world order that appears to be secure. However we undergo this order and the volatility in geopolitics for an additional 5 to eight years or so.
Meb:
I ponder is there a historic parallel or analog? In my head I’m considering of phrases like NIFTY 50. You return and skim a few of these books about a few of the shares you simply needed to personal. You couldn’t not personal a few of these firms in many years previous due to the identical type of idea the place it simply dragged the entire market cap weight up. Are there every other durations you suppose that this type of feels a bit like or related so far as we take a look at the playbook on what might transpire?
Felix:
The NIFTY 50s have been one, the TMT shares in 2000 have been one other one, after which the conglomerates within the late 60s have been one other one. The conglomerates like Litton Industries, Teledyne and all these conglomerates have been then in favor they usually obtained a really excessive a number of due to that and the cash was flowing into them and ultimately a lot of the shares with a number of exceptions declined badly thereafter and a few even disappeared.
Meb:
One of many huge subjects for the previous couple years, actually right here but in addition actually in different nations like Argentina has been inflation. And inflation actually spiked to fairly worrisome ranges and it appears like now in the USA’ most really feel prefer it’s conquered and is completed with. How do you type of take a look at this twin matter, and you’ll take this the place you are feeling applicable, of each inflation and bonds? I’ve seen you discuss so much about optimism and the bond mounted revenue world is fairly excessive proper now. What’s your ideas on that common space of mounted revenue and inflation?
Felix:
Effectively, initially, the patron value index has by no means gone down. It has at all times gone up. And inflation is the speed of change of the patron value index. They usually consistently change the composition of the patron value index to make it look decrease than inflation actually is or the price of dwelling actually is. Within the 70s, they took vitality out and meals out as a result of they mentioned, “We can’t management it,” as if folks wouldn’t drive automobiles and wouldn’t eat. It’s nonsense, in fact.
And not too long ago they took out healthcare insurance coverage premiums and changed it with healthcare insurance coverage firm’s income as a result of the one went down and the opposite went up. So I believe there are a whole lot of foolish video games being performed and in the event you take the basket of 1990, you might be at 9 or 10 % inflation at the moment within the US. And I come to the US for 50 years and in all these 50 years eating places have at all times been cheaper than in Switzerland aside from this 12 months.
This 12 months is the primary time in just about 50 years that the US was dearer than Switzerland. And that tells you that the US has an inflation drawback. And naturally the speed of change goes down and the bottom impact helps and commodities are serving to, oil helps and we get possibly right down to 2% or one thing like that subsequent 12 months, however the cycle behaves very a lot in keeping with the cycle within the late 60s and 70s and meaning it’ll backside out subsequent 12 months after which it goes up.
And if I’m proper in regards to the recession subsequent 12 months they usually inject liquidity, that may make commodities go up and also you compound that by the rivalry between the BRICS and the G7 and the BRICS management three quarters of the commodities of the world and they’re going to make it most price than ever. And the underinvestment now we have seen in recent times will make commodities rise very, very dramatically in my opinion.
So you’ll have most likely an oil value in 26 of 150, 200 {dollars}. That offers you a CPI of greater than 10%. So I believe we can have one other inflation cycle forward of us and I believe within the subsequent inflation cycle the bond markets might be crushed much more badly than within the final one. And within the final one was fairly heavy.
I imply, a 20-year treasury ETF went down 50% from 2020 to 23. And I believe subsequent time it’s obtained to be worse as a result of while you go the second time over 10%, I don’t consider that the 10-year treasuries will keep at 5. After which in the event you go to eight or one thing like that, then in fact the query is can our system deal with that? And I believe it can’t. We can have a disaster. We can have most likely one of the vital extreme recession disaster within the later 20s. And that’s what we most likely have to make the structural modifications in our authorities’s expenditures and revenue assertion. That may solely be made throughout a disaster.
You can’t reduce entitlements and you can’t elevate taxes dramatically in case you are in a pleasing circumstance, if the whole lot goes regular. However in case you are in a painful disaster that hurts everybody and the world is wanting very grim, then I believe you are able to do it. Then the politicians can promote it to their constituencies. All of us should sacrifice one thing and have to do it for the advantage of our nation. So that is what I see forward.
Meb:
You allude to commodities, which is a subject that I believe is tough for lots of traders. Effectively, there’s one specifically that’s nudging at all-time highs proper now and that’s in fact the shiny steel that generates most likely extra various opinions than virtually something on the market aside from my Aussie and Canadian mates, they’re on board.
However you’ve talked about gold up to now. Most Individuals, I really feel like that hearken to the present, don’t personal a lot of their portfolios. My Chinese language and Indian mates, it’s a special story. What are you occupied with the shiny steel, do you suppose it’s attention-grabbing, not attention-grabbing, is hitting all-time highs right here?
Felix:
Gold is cash and also you see that bodily gold is transferring from the West to the worldwide South, China, Russia, different BRICS nations are shopping for it and the West is promoting it. And I believe they’ve began historical past as a result of while you go right into a disaster, gold is cash while you want it as a result of your individual debased fiat cash, possibly no person desires at the moment, however gold is at all times accepted. And gold is unstable, goes up and down.
It displays the debasement of the fiat currencies. Gold they are saying is at all times value about an costly go well with. So there are folks shopping for fits for 2000, 3000 {dollars} and that’s most likely the value vary. Gold is on an eight-year cycle. While you return, it’s a fairly common eight 12 months cycle and the cycle low, the theoretical cycle low is due subsequent summer season in summer season of 24. And that goes along with my expectation of a recession and an enormous change in financial coverage.
So I believe from that theoretical cycle low, which can most likely be a better value than now, we’ll see an acceleration on the upside for about 4 years. So I’m fairly constructive on gold. I’ve not too long ago seen a survey amongst American traders, 71% of these polled confirmed they owned between zero and one % of their belongings. So gold is just not broadly owned and I believe it will likely be extra broadly owned as costs go up. Most individuals purchase essentially the most on the prime and never on the backside.
Meb:
I laughingly joined Costco as a result of I used to be attempting, I don’t know if it was a promotion, they’re attempting to get press or they’re really attempting to do it the place they have been promoting gold bars at Costco they usually instantly bought out in fact. So I’m going to look ahead into the subsequent couple of years when Costco turns into the largest distributor of gold bars on the planet.
I discovered an amazing truth this 12 months that Costco places out, it’s sells one thing like half of the world’s cashews. Which I believe is the worst of all of the nuts, listeners, however folks like them. So I don’t know what, possibly Costco places some magic seasoning mud on these. So tied together with this matter of gold, inflation, you talked about the US being cheaper than Switzerland.
So my takeaway from all that is I have to get my passport and go journey a bit bit whereas I obtained the time and the prospect on the, let’s discuss in regards to the greenback and world currencies. Is it a whole lot of the Quants will say that buying energy parity US greenback is pricey. Is that your view? What do you concentrate on the worldwide FX market, the place there’s alternative the place we should always keep away from?
Felix:
I believe the greenback has topped final September I believe it was, and is now in its second medium time period decline. And that medium time period decline, I count on to finish generally within the first quarter, most likely along with when the inventory market tops out. And from then I count on a restoration. I have no idea how lengthy it’ll will final, however in a non-safe world, while you evaluate the attractiveness of currencies and locations and jurisdictions, the US nonetheless comes out very excessive on the highest.
So I wouldn’t put, as an American, I wouldn’t put my cash into China or Russia or Argentina or no matter since you can’t belief these jurisdictions. They’ll merely make a brand new regulation in opposition to foreigners and also you lose the whole lot, as occurred in Russia. And subsequently, I believe capitalists from all around the world are nonetheless in search of a secure haven and switch to the US.
So the issue for the greenback will then come and arrive when the US central financial institution begins to ease financial coverage. The system is such as a result of the greenback continues to be the dominating forex on this entire forex system. It’s dollar-based. When the central financial institution sees the greenback declines as a result of it creates extra {dollars} than all of different currencies.
And if the central banks tighten, the greenback goes up as a result of it tightens, the largest pond tightens greater than all of the others little ponds. And after they start to ease subsequent 12 months, then I believe in some unspecified time in the future from summer season on or so, the greenback might have an even bigger drawback and should decline fairly sharply. You misunderstood me, I mentioned the US is dearer than Switzerland, not the opposite method round.
Meb:
Yeah. Yeah, US costly, so we obtained to journey.
Felix:
Yeah.
Meb:
Proper. Proper. Proper. Proper.
Felix:
Yeah. Yeah. That’s proper. Yeah, it’s important to journey. You must journey.
Meb:
My listeners are uninterested in listening to about me speaking about snowboarding in Japan the place the yen might be a few of the lowest ranges it’s been in a very long time. So I’m undoubtedly enthusiastic about heading again to Japan. In order we discuss all these totally different areas, what’s an space as we discuss avoiding the massive Magazine Seven, are there pockets of the US or explicit nations elsewhere that you just’re enthusiastic about? It may very well be types like worth progress, it may very well be sectors, it may very well be nations? Something that you just’re say, “Okay, this appears so much higher different than simply avoiding the massive dudes.”
Felix:
I believe we’re nearly altering from progress to worth. We’re within the late stage of this pull cycle from final 12 months’s low final fall. It’s the third up leg and that up leg when it ends will most probably result in a bear cycle. And as I defined, I believe the expansion shares because of the Magnificent Seven will undergo greater than the under-owned, than the under-owned shares that are worth shares and are cyclical shares, et cetera.
They’re cheaply priced. Most of the cyclicals and worth shares usually are not costly. They’re cheaply priced, they’re under-owned and that’s what I wish to purchase within the subsequent decline. Proper now now we have one sector going in opposition to the market that’s vitality. Vitality might be a beautiful sector going ahead, however it’s now correcting as a result of the value of oil is discounting a world recession and it’s coming down due to that.
It’s really telling us a really totally different story from the inventory markets. The inventory markets are telling us the whole lot is rosy whereas the commodity markets and oil specifically is telling us it’s not so wonderful, it’s not so good on the market. So, I believe when oil goes right down to let’s say 60 or beneath 60 in a number of months’ time, then I believe it’s a beautiful place to purchase vitality producers, oil producers and fuel producers in good jurisdictions, in secure jurisdictions.
So North America can be a very good place. Shares that produce in North America I believe would be the front-runners. They’re enticing. I additionally suppose that the commodity associated shares, producers of copper and aluminum and people issues might be enticing shares within the subsequent cycle, but it surely’s too early to purchase. They will even go down with the market however to not the identical diploma as the expansion shares.
And often when you may have a change in management, it’s often throughout a down cycle, throughout a downdraft the place these sectors that decline lower than others, these are those which might be bought out and also you don’t have the promoting strain. Whereas these which might be over-owned, they’re declining greater than others.
You wish to purchase on the backside those which might be under-owned and don’t decline as a lot. So it’s important to examine relative efficiency through the decline. And I believe you will see that many enticing firms among the many industrials and the cyclicals commodity associated additionally, vitality that we’ll be verifying for the subsequent up-cycle.
Meb:
The late Byron Wien at all times used to have his 10 surprises. If we sit down a 12 months from now and Felix says, “Okay, that is wanting again on it, most likely the largest shock of 2024 or so in a different way, what do you suppose goes to be the largest shock of the 12 months?” Something in that class of what you suppose could be the massive shock? Or we touched on it already.
Felix:
The large shock might be that the yen would be the strongest forex.
Meb:
Oh man, I higher pay for my journey forward of time.
Felix:
Completely.
Meb:
I have to pay my bills. Let’s go forward and e book these.
Felix:
Completely. You must perceive that the Japanese didn’t tighten coverage they usually have been the one ones that didn’t tighten and all of the others have tightened. When all of the others start to ease, the Japanese won’t ease as a result of they’ve been simple all the way in which and subsequently their forex has declined. The Japanese yen might be undervalued on a buying energy parity by 40% or so, and it has been used as the largest funding forex.
When it’s important to finance a mission, you at all times go to the currencies which might be the most cost effective to fund and the weakest, low cost and weak. Rates of interest have been low, the forex was weak, that was the perfect forex. What meaning is that you’ve got an enormous [inaudible 00:32:41] place on the market from these financings.
And when the pattern modifications, and it most likely has already modified, when that pattern modifications, it goes very quick. I keep in mind the final time we had such a state of affairs was within the late 90s, 1998. I used to be in that commerce in 1998. In 97 the Asian disaster began and due to that the yen was very weak, a really weak forex, and the greenback was a really sturdy forex. And greenback yen was at 148 and three weeks later, in three weeks it went from 148 to 108.
Meb:
My goodness.
Felix:
It was a dramatic commerce and it was certainly one of my higher trades. I used a whole lot of choices and I had certainly one of my superb years in these in 1998. Yeah.
Meb:
You’ve got fairly a number of non-consensus views. I do a Twitter thread the place I discuss what view do I maintain that’s 75% of my investing skilled friends. So if we sit down at a desk in Switzerland or Florida for espresso or lunch and Felix says one thing, the overwhelming majority of the desk would shake their heads and say, “He’s loopy.”
What’s a view? And this may very well be a framework, it doesn’t should be a present opinion, but it surely may very well be a present opinion, however what’s one thing that you’d say or consider that a lot of the desk wouldn’t agree with? So one thing that’s non-consensus that you just consider that the majority of your skilled friends, not retail, however skilled friends might not agree with you on.
Felix:
5 years in the past I began to put in writing about coming wars and all people was shaking their heads they usually laughed at me really. And now now we have wars and I believe the wars will intensify, they’ll develop larger. We can have extra wars and we run the chance of a battle the place the massive guys become involved. I wouldn’t say that Chinese language tanks will roll by the US or so, however I believe it may very well be a battle the place we attempt to sabotage their electrical grid they usually ours and the web and issues like that.
And this can do a whole lot of injury ultimately to our economies. And I believe this isn’t taken under consideration after I hearken to Wall Avenue, the mainstream guys. They go they usually have their playbook, they’ve their formulation, and I believe these formulation within the subsequent few years you’ll be able to throw out of the window. It doesn’t work that method.
Meb:
Is there something usually that type of on the time led you to that perception? Was it simply rhetoric from numerous teams? Was it long-term developments so far as societal type of macro points?
Felix:
It’s the essential thought of the [inaudible 00:35:40] entice. That is when you may have a state of affairs the place you may have a hegemon that controls the whole lot on the planet or in a area and abruptly new energy rises comes up and challenges the man, then you may have a battle. And that battle state of affairs now we have seen within the final 500 years, 16 occasions. 12 occasions, it led to direct battle of the 2 rivals and thrice it led to deputy wars and just one time it labored with out wars.
And that was the change from the Mom of Nice Britain to the [inaudible 00:36:20] of the US. And I believe we’re in such a state of affairs once more. And when Trump began to attempt to push China on commerce, it was clear on the [inaudible 00:36:35] the battle can be inescapable, the battle would come. It at all times begins with straight conflicts after which it turns into ultimately militarily.
And I believe we’re transferring in direction of such a state of affairs. The state of affairs in Israel is harmful as a result of if Israel, after the Gaza operation tries to show in opposition to Hezbollah. Hezbollah is in Syria, and Syria and Russia have a army settlement. Syria is backed by Iran, as is Hezbollah. It may pull these guys in and it’ll pull within the US on the opposite aspect.
And the Chinese language are the present energy dealer within the Center East. It’s not the US anymore. And naturally they’d again the BRICS aspect. It’s a really harmful state of affairs. I’ve not too long ago heard that it’s the primary time that the Israeli commando should at all times first discuss to the US earlier than they begin one thing as a result of the US is realizing how harmful the [inaudible 00:37:45] is and will change into. So that’s one thing I’m very frightened about.
Meb:
As you look again in your profession, that is going to be a tricky one, you talked about the yen already, what has been your most memorable funding? It may very well be good, it may very well be unhealthy, it may very well be in between, however simply the one which seared into your mind.
Felix:
Essentially the most memorable funding was a foul funding. That at all times… The nice investments you discuss, however the unhealthy investments you always remember.
Meb:
They stick to you.
Felix:
My worst funding was when silver peaked at 50 and I noticed that peak. I bought out my gold and silver and I believed it could go right down to 36 after which bounce to 45 or so. So at 36 I purchased silver, and as I purchased, it simply began to go down, down, down, down, down. And I bought out that 18. I misplaced 50% on that commerce and I used to be utterly confused. I used to be 30 years previous at the moment and it harm. I needed to flip the display screen off for a number of days. I couldn’t watch it anymore.
After which I went again to the drafting board and did my homework and I figured it could decline to 12 backside within the 12, 10 space after which bounced again to 24. So I waited and about six months later I purchased thrice as a lot between 10 and 12 after which it rallied to 24 the place I bought. So I got here out properly on the finish, however oh, that was horrible and it harm badly and I always remember that and it taught me the lesson by no means attempt to be tremendous sensible. Good alone is nice sufficient.
Meb:
Yeah. Silver, we didn’t point out but at present, however I used to be attempting to tug up a chart to see the place we’re sitting at present as gold is pulling it up. Proper round 20, 24, 25. So.
Felix:
Yeah. Yeah.
Meb:
Not all time highs. So possibly we obtained a bit catch-up to be doing.
Felix:
I believe silver might be attention-grabbing .and notably from subsequent 12 months on, I believe silver on the way in which up, as soon as the dear steel cycle begins to realize traction, then I believe silver will outperform gold on the way in which up. It’s an industrial steel. It’s not the financial steel. However however, I believe it’ll break 50 and go to new highs.
Meb:
Effectively, you heard it right here. Felix, if folks wish to comply with your writing, your analysis, your consulting, the place do they go? What’s the most effective place to search out extra details about you and what you’re as much as?
Felix:
You go to www.felixzulauf.com and you’ll write to information@felixzulauf.com and there you discover us.
Meb:
Felix, it’s been a blessing and a lot enjoyable. Thanks a lot for becoming a member of us at present and blissful holidays to you and all of yours.
Felix:
Blissful holidays to you too. And thanks very a lot for having me. It’s been an honor. Thanks, Meb
Meb:
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