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 the moment’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 targeted on the upcoming election in Taiwan.
Feedback or options? Fascinated by 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 seems like as 2023 winds down
- 3:30 – Why China shouldn’t be fascinated about excessive development
- 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 the moment
- 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 largest shock in 2024?
- 33:36 – One thing Felix believes that of most his friends don’t
- 38:01 – Felix’s most memorable funding
- Be taught extra about Felix : FelixZulauf.com
Transcript:
Welcome Message:
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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 talk about any of Cambria’s funds on this podcast. All opinions expressed by podcast individuals are solely their very own opinions and don’t mirror the opinion of Cambria Funding Administration or its associates. For extra data, go to cambriainvestments.com.
Meb:
Hi there, my associates. We bought an episode at the moment. I’ve been wanting ahead to this dialog for an extended, 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 the moment’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 targeted 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:
Nicely, it’s at all times been a problem for me to regulate to California through the holidays, seeing a bunch of lights and timber out on a pier within the ocean the place it’s 70 levels versus Colorado the place we’d nonetheless be going to high school 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 feels like a magical time this time of yr.
Felix:
I’m unsure it’s. Now we have no snow proper now down within the cities, so it will be good to have snow over Christmas time.
Meb:
So we’re going to bounce all around the globe this chat. Why don’t we get began together with your perch from over there in Switzerland, views of the worldwide financial system, what’s occurring? There’s been some macro forces, lots of people wringing their fingers this yr about potential recessions. And I believe everybody retains ready for one to come back and right here within the US and it simply looks as if it’s at all times within the horizon. What’s the world appear to be to you at the moment 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 true property growth and the credit score growth and that may take no less than 10 years if not longer. So China won’t be a locomotive to the world financial system for a lot of, a few years.
China is making an attempt to handle by way of this and the restructure step-by-step, present stimulus to assist however not stimulus to development. It’s not on the Chinese language agenda to create excessive development. First rate development, three, 4 % is sweet 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 form of what they’ve been saying is the perception slightly 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 stated 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 large. And give it some thought, the US has what? 140 million items of house in the entire us. The overhang of empty houses in China is about 100 million. In order that’s lots to digest and sadly they don’t have a inhabitants that’s rising.
It’s truly shrinking barely, however it can speed up the shrinking over time. So there isn’t any manner they’ll develop out of the issue. That’s unimaginable. Subsequently, they must restructure, they must take the write-offs and ultimately they must recapitalize the native governments, that are the large gamers in that they usually must recapitalize the banking trade they usually must monetize a variety of the debt.
However they are going to solely accomplish that as soon as the western world is on the level to take action additionally, as a result of we’ve our issues, structural issues as nicely. And I believe that may solely come within the second half of the 20s. However we are going to run into a serious disaster in just a few years’ time, fiscal disaster, et cetera, after which we are going to attempt to stimulate out of it. And as soon as the western world stimulates, the Chinese language will accomplish that.
Lately, in opposition to the expectation of many of the consultants 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 maintain all the pieces in steadiness till 2024 once we in all probability 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 will harm them.
Then we’ve Europe. Europe is the large loser on this complete 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 robust, it’s an enormous market, however all of them rely upon China for exports and US for exports and US on protection and they’ll come out very weak.
The financial system is struggling notably in these areas the place they attempt to go inexperienced and the off gas led power and nuclear power like Germany that’s very weak. They’re destroying the German financial system truly. Different elements are doing just a little bit higher. Spain is doing very nicely. Italy has now outperformed Germany I believe for nearly 4 years.
So web I’d say Europe is type of stagnating borderline to recession. And if the US goes into recession, we are going to in all probability additionally go into recession and the recession will deepen considerably. The US is the odd man. It has been the strongest financial 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 yr and a half or so will ultimately be felt throughout 2024.
However the consensus of a delicate touchdown may be very pronounced. And what I’ve realized in my profession is when you could have such a pronounced consensus and all of the consultants and forecasts agree, one thing else goes to occur. So I believe the financial system will first be just a little 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 gentle recession as a result of we should not have an enormous stock overhang or something of that kind. That might imply that company earnings let’s say go down 10%. It might go down extra however let’s say delicate 10%. Often in a recession they go down 25%. And you’re taking a backside, a bear market backside, a a number of of 16, you arrive at about 3,500.
That’s not what folks bear in mind once they enter the market today. And really the market has some technical points which can be very harmful. And I’m referring to the large focus of shares. Focus of shares that carry out very nicely and are the beneficiaries of weak inflows of cash on the way in which up can pull the market index up dramatically as performed this yr.
The 493 shares didn’t in addition to the Magnificent Seven, however take into account that whenever you spend money on a passive manner and also you index or whenever you spend money on an lively manner and also you do closet indexing as most guys are doing, then you find yourself with in all probability 80% of the fairness invested worldwide is benchmarked. And that implies that should 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 could 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 can exaggerate the transfer on the way in which down. So when a correction comes, when managers are hit with redemptions, once they have to boost money, et cetera, they must promote what they personal an excessive amount of of and people are the heavyweights of the Magnificent Seven as a result of should you needed to outperform, you needed to obese these Magnificent Seven, in any other case you’re performed.
And I lately learn a report that stated 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 might think about it’s. And if that’s true and the marketplace for no matter motive turns down, you then get the transfer down that will get exaggerated and has nothing to do with the true financial system. Individuals don’t perceive that because the transfer up right here doesn’t have a lot to do with the true financial system.
Meb:
Man, Felix, you touched on lots there, so we’re going to dive into just a few issues. The primary, I used to be laughing as you have been speaking about Italy as a result of one in all my favourite issues to do once I go on TV is I ask my son, he’s six. I say, “You bought to provide 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 number of the stuff that’s the day by day subject.”
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 manner on dwell TV I can work in Mama Mia.” However Italian shares have been having an ideal yr and so I believed I couldn’t do it however I used to be capable of squeeze it in. I don’t assume 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 form of geopolitics, everyone seems to be so targeted within the macro world at all times on the large occasions, what’s occurring in Ukraine, what’s occurring in Israel, elections, we bought one arising within the US subsequent yr, Argentina. However the one which I’ve seen you write lots about is the significance of the Taiwanese election. Possibly discuss just a little bit about how which may 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. In fact 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 throughout the subsequent 5 years.
That was an enormous mistake. It shouldn’t have put a time restrict on that. In Taiwan you could have individuals who favor getting nearer with China and you’ve got others which can be in opposition to it. And on January thirteenth there may be the following election and you’ve got two opposition events that collectively within the polls have 53% which can 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 may win the elections. I hoped that Xi or China would lean on these two events to some extent to make it occur. Now we have to attend for the end result, however you even have to grasp that about 10% of the Taiwanese workforce already lively in China.
They work there and the consultants and the engineers from semiconductor corporations, 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 often aggressive with their army maneuvers et cetera. However I don’t see a struggle arising there.
I believe that may be unhealthy. I believe the Taiwanese working in China are telling their folks again house they’re handled very nicely, they make an excellent dwelling, all the pieces is ok. And over time, if no one would provoke, over time the 2 would get nearer collectively. The Taiwanese by the way in which, at any time when 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 completely satisfied.
Meb:
Nicely, it’s attention-grabbing, we have been speaking about this the opposite day with any individual the place everyone seems to be so excited and sizzling bothered about a variety of the American massive tech. And notably whenever you’re speaking about investments in shares, American semiconductor corporations.
And should you look in Taiwan and elsewhere, South Korea particularly, there occurs to be a variety of semiconductor corporations, additionally ones that commerce at a a lot bigger valuation low cost than a number of the ones in the US do, together with just a few which have been two, three baggers this yr 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, however it looks as if a complete investing profession at this level.
Felix:
No, I believe the catalyst will likely be when the Magnificent Seven decline, that would be the set off. After which you should have possibly one other another cycle the place the US outperforms and that needs 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 all the pieces is settled out and we’ve a brand new world order that appears to be steady. 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 pondering of phrases like NIFTY 50. You return and skim a few of these books about a number of the shares you simply needed to personal. You couldn’t not personal a few of these corporations 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 assume that this type of feels just a little like or related so far as we have 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 bought a really excessive a number of due to that and the cash was flowing into them and ultimately many of the shares with just a few exceptions declined badly thereafter and a few even disappeared.
Meb:
One of many huge matters for the previous couple years, actually right here but additionally actually in different international locations like Argentina has been inflation. And inflation actually spiked to fairly worrisome ranges and it seems like now in the US’ most really feel prefer it’s conquered and is finished with. How do you type of have a look at this twin subject, and you’ll take this the place you are feeling applicable, of each inflation and bonds? I’ve seen you discuss lots about optimism and the bond mounted revenue world is fairly excessive proper now. What’s your ideas on that basic space of mounted revenue and inflation?
Felix:
Nicely, to begin with, the buyer worth index has by no means gone down. It has at all times gone up. And inflation is the speed of change of the buyer worth index. And so they consistently change the composition of the buyer worth index to make it look decrease than inflation actually is or the price of dwelling actually is. Within the 70s, they took power out and meals out as a result of they stated, “We can not management it,” as if folks wouldn’t drive vehicles and wouldn’t eat. It’s nonsense, in fact.
And lately they took out healthcare insurance coverage premiums and changed it with healthcare insurance coverage firm’s earnings as a result of the one went down and the opposite went up. So I believe there are a variety of foolish video games being performed and should you take the basket of 1990, you’re 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 yr.
This yr is the primary time in nearly 50 years that the US was costlier 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 all the way down to 2% or one thing like that subsequent yr, however the cycle behaves very a lot in accordance with the cycle within the late 60s and 70s and which means it’ll backside out subsequent yr after which it goes up.
And if I’m proper in regards to the recession subsequent yr 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’ll make it most price than ever. And the underinvestment we’ve seen in recent times will make commodities rise very, very dramatically for my part.
So you should have in all probability an oil worth in 26 of 150, 200 {dollars}. That offers you a CPI of greater than 10%. So I believe we could have one other inflation cycle forward of us and I believe within the subsequent inflation cycle the bond markets will likely 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 bought to be worse as a result of whenever you go the second time over 10%, I don’t imagine that the 10-year treasuries will keep at 5. After which should 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 not. We could have a disaster. We could have in all probability some of the extreme recession disaster within the later 20s. And that’s what we in all probability have to make the structural adjustments in our authorities’s expenditures and revenue assertion. That may solely be made throughout a disaster.
You can not reduce entitlements and you can not elevate taxes dramatically if you’re in a nice circumstance, if all the pieces goes regular. However if you’re 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 must sacrifice one thing and have to do it for the good thing about our nation. So that is what I see forward.
Meb:
You allude to commodities, which is a subject that I believe is difficult for lots of traders. Nicely, there’s one particularly that’s nudging at all-time highs proper now and that’s in fact the shiny steel that generates in all probability extra assorted opinions than virtually something on the market aside from my Aussie and Canadian associates, 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 associates, it’s a unique story. What are you fascinated by the shiny steel, do you assume 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 whenever you go right into a disaster, gold is cash whenever you want it as a result of your personal debased fiat cash, possibly no one 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 price about an costly swimsuit. So there are folks shopping for fits for 2000, 3000 {dollars} and that’s in all probability the value vary. Gold is on an eight-year cycle. If you return, it’s a fairly common eight yr cycle and the cycle low, the theoretical cycle low is due subsequent summer time in summer time 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 is able to in all probability be a better worth than now, we are going to see an acceleration on the upside for about 4 years. So I’m fairly constructive on gold. I’ve lately seen a survey amongst American traders, 71% of these polled confirmed they owned between zero and one % of their property. So gold shouldn’t be extensively owned and I believe it will likely be extra extensively owned as costs go up. Most individuals purchase probably the most on the high and never on the backside.
Meb:
I laughingly joined Costco as a result of I used to be making an attempt, I don’t know if it was a promotion, they’re making an attempt to get press or they’re truly making an attempt 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 following couple of years when Costco turns into the most important distributor of gold bars on the planet.
I realized an ideal truth this yr 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 subject 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 just a little bit whereas I bought the time and the prospect on the, let’s discuss in regards to the greenback and international currencies. Is it a variety of the Quants will say that buying energy parity US greenback is pricey. Is that your view? What do you consider 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 typically within the first quarter, in all probability 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, whenever 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 not belief these jurisdictions. They will merely make a brand new legislation in opposition to foreigners and also you lose all the pieces, as occurred in Russia. And subsequently, I believe capitalists from all around the world are nonetheless in search of a protected 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 complete 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 most important pond tightens greater than all of the others little ponds. And once they start to ease subsequent yr, then I believe in some unspecified time in the future from summer time on or so, the greenback might have an even bigger drawback and will decline fairly sharply. You misunderstood me, I stated the US is costlier than Switzerland, not the opposite manner round.
Meb:
Yeah. Yeah, US costly, so we bought to journey.
Felix:
Yeah.
Meb:
Proper. Proper. Proper. Proper.
Felix:
Yeah. Yeah. That’s proper. Yeah, it’s a must to journey. You must journey.
Meb:
My listeners are bored with listening to about me speaking about snowboarding in Japan the place the yen might be a number of the lowest ranges it’s been in a very long time. So I’m positively enthusiastic about heading again to Japan. In order we discuss all these totally different areas, what’s an space as we discuss avoiding the large Magazine Seven, are there pockets of the US or explicit international locations elsewhere that you just’re fascinated about? It might be types like worth development, it might be sectors, it might be international locations? Something that you just’re say, “Okay, this seems lots higher different than simply avoiding the large dudes.”
Felix:
I believe we’re nearly altering from development to worth. We’re within the late stage of this pull cycle from final yr’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. Lots 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 we’ve one sector going in opposition to the market that’s power. Power will likely be a sexy sector going ahead, however it’s now correcting as a result of the value of oil is discounting a worldwide recession and it’s coming down due to that.
It’s truly telling us a really totally different story from the inventory markets. The inventory markets are telling us all the pieces is rosy whereas the commodity markets and oil particularly is telling us it’s not so tremendous, it’s not so good on the market. So, I believe when oil goes all the way down to let’s say 60 or under 60 in just a few months’ time, then I believe it’s a sexy place to purchase power producers, oil producers and fuel producers in good jurisdictions, in protected jurisdictions.
So North America could be an excellent place. Shares that produce in North America I believe would be the front-runners. They’re engaging. I additionally assume that the commodity associated shares, producers of copper and aluminum and people issues will likely be engaging shares within the subsequent cycle, however it’s too early to purchase. They may even go down with the market however to not the identical diploma as the expansion shares.
And normally when you could have a change in management, it’s normally throughout a down cycle, throughout a downdraft the place these sectors that decline lower than others, these are those which can be bought out and also you should not have the promoting stress. Whereas these which can be over-owned, they’re declining greater than others.
You wish to purchase on the backside those which can be under-owned and don’t decline as a lot. So it’s a must to research relative efficiency through the decline. And I believe you’ll find many engaging corporations among the many industrials and the cyclicals commodity associated additionally, power that we’ll be verifying for the following up-cycle.
Meb:
The late Byron Wien at all times used to have his 10 surprises. If we sit down a yr from now and Felix says, “Okay, that is wanting again on it, in all probability the most important shock of 2024 or so in another way, what do you assume goes to be the most important shock of the yr?” Something in that class of what you assume may be the large shock? Or we touched on it already.
Felix:
The massive shock will likely 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 most important funding forex.
When it’s a must to finance a mission, you at all times go to the currencies which can be the most affordable 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 which means is that you’ve got an enormous [inaudible 00:32:41] place on the market from these financings.
And when the pattern adjustments, and it in all probability has already modified, when that pattern adjustments, it goes very quick. I keep in mind the final time we had such a scenario 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 robust 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 one in all my higher trades. I used a variety of choices and I had one in all my excellent years in these in 1998. Yeah.
Meb:
You may have fairly just a few 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 might be a framework, it doesn’t must be a present opinion, however it might be a present opinion, however what’s one thing that you’d say or imagine that many of the desk wouldn’t agree with? So one thing that’s non-consensus that you just imagine 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 jot down about coming wars and all people was shaking their heads they usually laughed at me truly. And now we’ve wars and I believe the wars will intensify, they are going to develop larger. We could have extra wars and we run the chance of a struggle the place the large guys become involved. I wouldn’t say that Chinese language tanks will roll by way of the US or so, however I believe it might be a struggle the place we attempt to sabotage their electrical grid they usually ours and the web and issues like that.
And this can do a variety of harm ultimately to our economies. And I believe this isn’t taken under consideration once I hearken to Wall Road, 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 may throw out of the window. It doesn’t work that manner.
Meb:
Is there something typically that form of on the time led you to that perception? Was it simply rhetoric from varied teams? Was it long-term developments so far as societal form of macro points?
Felix:
It’s the fundamental thought of the [inaudible 00:35:40] entice. That is when you could have a scenario the place you could have a hegemon that controls all the pieces on the planet or in a area and hastily new energy rises comes up and challenges the man, then you could have a battle. And that battle scenario we’ve seen within the final 500 years, 16 instances. 12 instances, it led to direct struggle of the 2 rivals and 3 times 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 scenario once more. And when Trump began to attempt to push China on commerce, it was clear on the [inaudible 00:36:35] the battle could 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 the direction of such a scenario. The scenario 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 might pull these guys in and it’ll pull within the US on the opposite facet.
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 facet. It’s a really harmful scenario. I’ve lately 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 nervous 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 might be good, it might be unhealthy, it might 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 will go all the way 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 outdated at the moment and it harm. I needed to flip the display screen off for just a few days. I couldn’t watch it anymore.
After which I went again to the drafting board and did my homework and I figured it will 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 3 times 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 sweet sufficient.
Meb:
Yeah. Silver, we didn’t point out but at the moment, however I used to be making an attempt to tug up a chart to see the place we’re sitting at the moment as gold is pulling it up. Proper round 20, 24, 25. So.
Felix:
Yeah. Yeah.
Meb:
Not all time highs. So possibly we bought just a little catch-up to be doing.
Felix:
I believe silver will likely be attention-grabbing .and notably from subsequent yr 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:
Nicely, you heard it right here. Felix, if folks wish to observe your writing, your analysis, your consulting, the place do they go? What’s the perfect place to seek out extra details about you and what you’re as much as?
Felix:
You go to www.felixzulauf.com and you’ll write to data@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 the moment and completely satisfied holidays to you and all of yours.
Felix:
Joyful holidays to you too. And thanks very a lot for having me. It’s been an honor. Thanks, Meb
Meb:
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