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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 immediately’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 solutions? Desirous about sponsoring an episode? Electronic mail us [email protected]
Hyperlinks from the Episode:
- 1:23 – Welcome Felix to the present
- 2:14 – What the world appears to be like like as 2023 winds down
- 3:30 – Why China isn’t fascinated with excessive progress
- 11:45 – How the Taiwanese election may have an effect on markets
- 15:15 – Worth disconnect between the US & the remainder of the world
- 16:38 – Historic parallels to the market atmosphere immediately
- 17:38 – Ideas on mounted earnings 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:
Welcome to The Meb Faber Present the place the main focus is on serving to you develop and protect your wealth. Be a part of us as we focus on the craft of investing and uncover new and worthwhile concepts all that will help you develop wealthier and wiser. Higher investing begins right here.
Disclaimer:
Meb Faber is the co-founder and chief funding officer at Cambria Funding Administration. Resulting from business rules, he won’t focus on any of Cambria’s funds on this podcast. All opinions expressed by podcast members 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:
Howdy, my buddies. We received an episode immediately. I’ve been trying ahead to this dialog for an extended, very long time. Excited to share our chat with well-known macro professional Felix Zulauf, founding father of Zulauf Consulting. He was beforehand the worldwide strategist for UBS and later ran his personal asset administration agency.
In immediately’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 get pleasure from 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:
Properly, it’s all the time been a problem for me to regulate to California throughout 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 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 seems like a magical time this time of yr.
Felix:
I’m unsure it’s. We’ve got no snow proper now down within the cities, so it might 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 occurring? There’s been some macro forces, lots of people wringing their palms this yr about potential recessions. And I feel everybody retains ready for one to return and right here within the US and it simply looks as if it’s all the time within the horizon. What’s the world appear to be to you immediately as we wind down 2023?
Felix:
We’ve got three areas in very totally different standing. We’ve got China that’s kind 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 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 making an attempt to handle by means of 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 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 sort of what they’ve been saying is the perception relatively from simply indicators you’re taking a look at? What makes you come to kind of that perception as you look to the far East?
Felix:
I’ve stated that for a few years. After 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 properties in China is about 100 million. In order that’s quite a bit to digest and sadly they don’t have a inhabitants that’s rising.
It’s truly shrinking barely, however it’ll speed up the shrinking over time. So there isn’t any means they’ll develop out of the issue. That’s unattainable. Due to this fact, they need to restructure, they need to take the write-offs and ultimately they need to recapitalize the native governments, that are the large gamers in that they usually need to recapitalize the banking business they usually need to monetize numerous 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 we have now our issues, structural issues as nicely. And I feel that may solely come within the second half of the 20s. However we’ll run into a significant disaster in just a few 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.
Not too long ago, towards the expectation of a lot 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 need to preserve the whole lot in steadiness till 2024 after 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 might harm them.
Then we have now Europe. Europe is the large loser on this complete recreation 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 haven’t any saying on the earth actually. Economically they’ve been sturdy, it’s a giant market, however all of them rely upon 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 power and nuclear power like Germany that’s very weak. They’re destroying the German economic system truly. Different elements are doing a bit bit higher. Spain is doing very nicely. Italy has now outperformed Germany I feel for nearly 4 years.
So internet I might say Europe is kind of stagnating borderline to recession. And if the US goes into recession, we’ll in all probability 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 feel the tightening over the past yr and a half or so will ultimately be felt throughout 2024.
However the consensus of a gentle touchdown could 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 feel 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 gentle recession as a result of we do not need an enormous stock overhang or something of that kind. That would imply that company earnings let’s say go down 10%. It might 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 keep in mind after they enter the market as of late. And truly 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 best way up can pull the market index up dramatically as accomplished this yr.
The 493 shares didn’t in addition to the Magnificent Seven, however take into account that whenever you put money into a passive means and also you index or whenever you put money into an energetic means 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 signifies that in case you put money into a world index, nearly 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 earth. And that was very good on the best way up. I feel it’ll exaggerate the transfer on the best way down. So when a correction comes, when managers are hit with redemptions, after they have to lift money, et cetera, they need to promote what they personal an excessive amount of of and people are the heavyweights of the Magnificent Seven as a result of in case you wished to outperform, you needed to chubby these Magnificent Seven, in any other case you’re accomplished.
And I lately learn a report that stated the big 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, then you definately get the transfer down that will get exaggerated and has nothing to do with the actual economic system. Folks 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 quite a bit there, so we’re going to dive into just a few issues. The primary, I used to be laughing as you had been speaking about Italy as a result of one in all my favourite issues to do after I go on TV is I ask my son, he’s six. I say, “You bought to present me a phrase to work into the interview as a problem and so that you simply’ll watch it and make it enjoyable for me, as a result of in any other case I get bored speaking about among the stuff that’s the each 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 means on dwell TV I can work in Mama Mia.” However Italian shares had been having an amazing 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 might 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 sort of geopolitics, everyone seems to be so centered within the macro world all the time on the large occasions, what’s occurring in Ukraine, what’s occurring in Israel, elections, we received one arising within the US subsequent yr, Argentina. However the one which I’ve seen you write quite a bit about is the significance of the Taiwanese election. Perhaps speak a bit bit about how which may be an essential position or an essential level within the subsequent few years so far as geopolitics and macro and markets.
Felix:
The Taiwanese are additionally Chinese language initially. And I feel 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 feel if the US would sit quiet relating to Taiwan, there wouldn’t be an issue and we wouldn’t speak about it and Xi wouldn’t have made the error of claiming we need to combine Taiwan inside the subsequent 5 years.
That was a giant mistake. It mustn’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 towards it. And on January thirteenth there’s the subsequent 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 resolve 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 a point to make it occur. We’ve got to attend for the result, however you even have to know that about 10% of the Taiwanese workforce already energetic 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 feel the alternate 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 conflict arising there.
I feel that might be unhealthy. I feel the Taiwanese working in China are telling their folks again house they’re handled very nicely, they make a great residing, the whole lot is okay. And over time, if no person would provoke, over time the 2 would get nearer collectively. The Taiwanese by the best way, each time they made a brand new innovation or new chip or so that they all the time gave China a 3 to 4 months lead over others to maintain them completely happy.
Meb:
Properly, it’s fascinating, we had been speaking about this the opposite day with anyone the place everyone seems to be so excited and scorching bothered about numerous the American giant tech. And notably whenever you’re speaking about investments in shares, American semiconductor corporations.
And in case you look in Taiwan and elsewhere, South Korea particularly, there occurs to be numerous semiconductor corporations, additionally ones that commerce at a a lot bigger valuation low cost than among the ones in america do, together with just a few which have been two, three baggers this yr alone.
It’s all the time fascinating 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 feel the catalyst can 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 needs to be it.
As a result of then the world order will get rearranged and the US dominance is in decline. And I feel capital might then go to different locations as soon as the whole lot is settled out and we have now 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’m wondering 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 among the shares you simply needed to personal. You couldn’t not personal a few of these corporations in a long time previous due to the identical kind of idea the place it simply dragged the entire market cap weight up. Are there some other intervals you assume that this type of feels a bit like or comparable so far as we have a look at the playbook on what might transpire?
Felix:
The NIFTY 50s had been one, the TMT shares in 2000 had been one other one, after which the conglomerates within the late 60s had been one other one. The conglomerates like Litton Industries, Teledyne and all these conglomerates had been then in favor they usually received a really excessive a number of due to that and the cash was flowing into them and ultimately a lot 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 nations like Argentina has been inflation. And inflation actually spiked to fairly worrisome ranges and it seems like now in america’ most really feel prefer it’s conquered and is completed with. How do you kind of have a look at this twin subject, and you may take this the place you’re feeling applicable, of each inflation and bonds? I’ve seen you speak quite a bit about optimism and the bond mounted earnings world is fairly excessive proper now. What’s your ideas on that basic space of mounted earnings and inflation?
Felix:
Properly, initially, the patron worth index has by no means gone down. It has all the time gone up. And inflation is the speed of change of the patron worth index. They usually always change the composition of the patron worth index to make it look decrease than inflation actually is or the price of residing 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 automobiles 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 feel there are numerous foolish video games being performed and in case you take the basket of 1990, you’re at 9 or 10 % inflation these days within the US. And I come to the US for 50 years and in all these 50 years eating places have all the time been cheaper than in Switzerland aside from this yr.
This yr 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 downside. 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 response to 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’re going to make it most price than ever. And the underinvestment we have now seen in recent times will make commodities rise very, very dramatically for my part.
So you’ll have in all probability an oil worth in 26 of 150, 200 {dollars}. That offers you a CPI of greater than 10%. So I feel we may have one other inflation cycle forward of us and I feel within the subsequent inflation cycle the bond markets can 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 feel subsequent time it’s received 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 in case you go to eight or one thing like that, then in fact the query is can our system deal with that? And I feel it can not. We may have a disaster. We may 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 modifications in our authorities’s expenditures and earnings assertion. That may solely be made throughout a disaster.
You can’t reduce entitlements and you can’t elevate taxes dramatically if you’re in a nice circumstance, if the whole lot goes regular. However if you’re in a painful disaster that hurts everybody and the world is trying very grim, then I feel you are able to do it. Then the politicians can promote it to their constituencies. All of us need to 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 feel is tough for lots of buyers. Properly, there’s one specifically that’s nudging at all-time highs proper now and that’s in fact the shiny steel that generates in all probability extra diverse opinions than nearly something on the market aside from my Aussie and Canadian buddies, they’re on board.
However you’ve talked about gold prior to now. Most People, I really feel like that take heed to the present, don’t personal a lot of their portfolios. My Chinese language and Indian buddies, it’s a unique story. What are you occupied with the shiny steel, do you assume it’s fascinating, not fascinating, 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 feel 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 individual debased fiat cash, possibly no person desires at the moment, however gold is all the time accepted. And gold is unstable, goes up and down.
It displays the debasement of the fiat currencies. Gold they are saying is all the time value about an costly swimsuit. So there are folks shopping for fits for 2000, 3000 {dollars} and that’s in all probability the worth vary. Gold is on an eight-year cycle. Whenever 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 a giant change in financial coverage.
So I feel from that theoretical cycle low, which is able to in all probability be the next worth than now, we’ll 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 buyers, 71% of these polled confirmed they owned between zero and one % of their property. So gold isn’t broadly owned and I feel it is going to be extra broadly owned as costs go up. Most individuals purchase probably the most on the prime 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 had been promoting gold bars at Costco they usually instantly offered 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 earth.
I realized an amazing truth this yr that Costco places out, it’s sells one thing like half of the world’s cashews. Which I feel 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 a bit bit whereas I received the time and the prospect on the, let’s speak in regards to the greenback and international currencies. Is it numerous 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 feel the greenback has topped final September I feel 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 examine 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’ll merely make a brand new legislation towards foreigners and also you lose the whole lot, as occurred in Russia. And due to this fact, I feel capitalists from everywhere in 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 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 largest pond tightens greater than all of the others little ponds. And after they start to ease subsequent yr, then I feel sooner or later from summer time on or so, the greenback might have an even bigger downside and will decline fairly sharply. You misunderstood me, I stated the US is dearer than Switzerland, not the opposite means round.
Meb:
Yeah. Yeah, US costly, so we received to journey.
Felix:
Yeah.
Meb:
Proper. Proper. Proper. Proper.
Felix:
Yeah. Yeah. That’s proper. Yeah, you need 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 among the lowest ranges it’s been in a very long time. So I’m undoubtedly enthusiastic about heading again to Japan. In order we speak about all these totally different areas, what’s an space as we speak about avoiding the large Magazine Seven, are there pockets of the US or explicit nations elsewhere that you simply’re fascinated with? It could possibly be types like worth progress, it could possibly be sectors, it could possibly be nations? Something that you simply’re say, “Okay, this appears to be like quite a bit higher different than simply avoiding the large dudes.”
Felix:
I feel we’re nearly altering from progress 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 almost certainly result in a bear cycle. And as I defined, I feel the expansion shares as a result of Magnificent Seven will endure 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 aren’t costly. They’re cheaply priced, they’re under-owned and that’s what I need to purchase within the subsequent decline. Proper now we have now one sector going towards the market that’s power. Vitality can be a lovely sector going ahead, however it’s now correcting as a result of the worth of oil is discounting a world 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 the whole lot is rosy whereas the commodity markets and oil specifically is telling us it’s not so fantastic, it’s not so good on the market. So, I feel when oil goes all the way down to let’s say 60 or under 60 in just a few months’ time, then I feel it’s a lovely place to purchase power producers, oil producers and fuel producers in good jurisdictions, in secure jurisdictions.
So North America can be a great place. Shares that produce in North America I feel would be the front-runners. They’re engaging. I additionally assume that the commodity associated shares, producers of copper and aluminum and people issues can 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 often when you could 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 can be offered out and also you do not need the promoting strain. Whereas these which can be over-owned, they’re declining greater than others.
You need to purchase on the backside those which can be under-owned and don’t decline as a lot. So you need to examine relative efficiency throughout the decline. And I feel you will see many engaging corporations among the many industrials and the cyclicals commodity associated additionally, power that we’ll be verifying for the subsequent up-cycle.
Meb:
The late Byron Wien all the time used to have his 10 surprises. If we sit down a yr from now and Felix says, “Okay, that is trying again on it, in all probability the largest shock of 2024 or so otherwise, what do you assume goes to be the largest shock of the yr?” Something in that class of what you assume is perhaps the large shock? Or we touched on it already.
Felix:
The massive shock can 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 guide these.
Felix:
Completely. You must perceive that the Japanese didn’t tighten coverage they usually had 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 best way and due to this fact 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 you need to finance a undertaking, you all the time go to the currencies which can be the most cost effective to fund and the weakest, low cost and weak. Rates of interest had 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 development modifications, and it in all probability has already modified, when that development modifications, it goes very quick. I bear 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 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 one in all my higher trades. I used numerous choices and I had one in all my excellent years in these in 1998. Yeah.
Meb:
You’ve got fairly just a few non-consensus views. I do a Twitter thread the place I speak about 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 could possibly be a framework, it doesn’t need to be a present opinion, however it could possibly be a present opinion, however what’s one thing that you’d say or imagine that a lot of the desk wouldn’t agree with? So one thing that’s non-consensus that you simply 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 everyone was shaking their heads they usually laughed at me truly. And now we have now wars and I feel the wars will intensify, they’ll develop larger. We may have extra wars and we run the chance of a conflict the place the large guys become involved. I wouldn’t say that Chinese language tanks will roll by means of the US or so, however I feel it could possibly be a conflict the place we attempt to sabotage their electrical grid they usually ours and the web and issues like that.
And this can do numerous harm ultimately to our economies. And I feel this isn’t taken under consideration after I take heed to Wall Road, the mainstream guys. They go they usually have their playbook, they’ve their formulation, and I feel these formulation within the subsequent few years you’ll be able to throw out of the window. It doesn’t work that means.
Meb:
Is there something typically that sort of on the time led you to that perception? Was it simply rhetoric from numerous teams? Was it long-term tendencies so far as societal sort of macro points?
Felix:
It’s the essential thought of the [inaudible 00:35:40] lure. That is when you could have a scenario the place you could have a hegemon that controls the whole lot on the earth 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 have now seen within the final 500 years, 16 instances. 12 instances, it led to direct conflict 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 feel 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 can be inescapable, the battle would come. It all the time begins with straight conflicts after which it turns into ultimately militarily.
And I feel we’re transferring in direction of such a scenario. The scenario in Israel is harmful as a result of if Israel, after the Gaza operation tries to show towards 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 aspect.
And the Chinese language are the present energy dealer within the Center East. It’s not the US anymore. And naturally they might again the BRICS aspect. It’s a really harmful scenario. I’ve lately heard that it’s the primary time that the Israeli commando should all the time first speak 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 turn out to be. So that’s one thing I’m very fearful 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 could possibly be good, it could possibly be unhealthy, it could possibly be in between, however simply the one which seared into your mind.
Felix:
Essentially the most memorable funding was a nasty funding. That all the time… The nice investments you speak about, however the unhealthy investments you always remember.
Meb:
They persist with you.
Felix:
My worst funding was when silver peaked at 50 and I noticed that peak. I offered out my gold and silver and I believed it might 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 offered 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 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 might 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 offered. 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. Sensible alone is sweet sufficient.
Meb:
Yeah. Silver, we didn’t point out but immediately, however I used to be making an attempt to drag up a chart to see the place we’re sitting immediately as gold is pulling it up. Proper round 20, 24, 25. So.
Felix:
Yeah. Yeah.
Meb:
Not all time highs. So possibly we received a bit catch-up to be doing.
Felix:
I feel silver can be fascinating .and notably from subsequent yr on, I feel silver on the best way up, as soon as the valuable steel cycle begins to achieve traction, then I feel silver will outperform gold on the best way up. It’s an industrial steel. It’s not the financial steel. However however, I feel it’ll break 50 and go to new highs.
Meb:
Properly, you heard it right here. Felix, if folks need to comply with your writing, your analysis, your consulting, the place do they go? What’s the most effective place to seek out extra details about you and what you’re as much as?
Felix:
You go to www.felixzulauf.com and you may write to [email protected] 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 immediately and completely happy holidays to you and all of yours.
Felix:
Completely satisfied holidays to you too. And thanks very a lot for having me. It’s been an honor. Thanks, Meb
Meb:
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