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 right now’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 could 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 ideas? Concerned about 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 just isn’t all in favour of 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 setting right now
- 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:
Welcome Message:
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Disclaimer:
Meb Faber is the co-founder and chief funding officer at Cambria Funding Administration. As a result of trade rules, he is not going to talk about any of Cambria’s funds on this podcast. All opinions expressed by podcast contributors are solely their very own opinions and don’t replicate the opinion of Cambria Funding Administration or its associates. For extra data, go to cambriainvestments.com.
Meb:
Whats up, my associates. We obtained an episode right now. I’ve been wanting ahead to this dialog for a protracted, 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 right now’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 could 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 get pleasure from this episode with Felix Zulauf. Felix, welcome to point out.
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 at all times 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 appears like a magical time this time of yr.
Felix:
I’m unsure it’s. We now 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 around the globe 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 like it’s at all times within the horizon. What’s the world appear to be to you right now as we wind down 2023?
Felix:
We now have three areas in very totally different standing. We now have China that’s kind of weakish. It has misplaced its momentum. It has to digest the overhang from the true property increase and the credit score increase and that can take at the very least 10 years if not longer. So China is not going to be a locomotive to the world economic system for a lot of, a few years.
China is attempting to handle by way 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 p.c is sweet sufficient for them and in actuality, three or 4 p.c what they publish might be one to 2 p.c, no more than that.
Meb:
And are you choosing that up from form of what they’ve been saying is the perception quite from simply indicators you’re ? 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. Once I noticed the overhang from development increase, actual property increase, the credit score increase, as soon as that’s over, the overhang is large. And give it some thought, the US has what? 140 million items of residence in the entire us. The overhang of empty properties 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’ll speed up the shrinking over time. So there isn’t any manner they’ll develop out of the issue. That’s not possible. 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 massive gamers in that and so they need to recapitalize the banking trade and so they need to monetize loads of the debt.
However they’ll solely accomplish that as soon as the western world is on the level to take action additionally, as a result of we’ve got our issues, structural issues as properly. And I feel that can solely come within the second half of the 20s. However we are going to run into a significant disaster in a number of 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.
Just lately, towards 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 need to preserve every part 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 could damage them.
Then we’ve got Europe. Europe is the massive 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 and so they don’t have any saying on this planet actually. Economically they’ve been robust, it’s a giant 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 significantly in these areas the place they attempt to go inexperienced and the off gasoline led vitality and nuclear vitality like Germany that’s very weak. They’re destroying the German economic system truly. Different elements are doing slightly bit higher. Spain is doing very properly. Italy has now outperformed Germany I feel for nearly 4 years.
So internet I’d say Europe is kind 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 economic system, supplied some huge cash to the individuals to spend. And that fiscal assist helped after all. 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 may be very pronounced. And what I’ve discovered in my profession is when you’ve 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 slightly bit stronger than anticipated after which weaker than anticipated and fall into recession. And that ought to damage the company earnings.
Let’s say it’s going to be a light recession as a result of we should not have an enormous stock overhang or something of that kind. That might imply that company income let’s say go down 10%. It may 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 individuals take note of once they enter the market nowadays. And really the market has some technical points which are very harmful. And I’m referring to the large focus of shares. Focus of shares that carry out very properly and are the beneficiaries of weak inflows of cash on the way in which up can pull the market index up dramatically as completed this yr.
The 493 shares didn’t in addition to the Magnificent Seven, however take into account that while you spend money on a passive manner and also you index or while you spend money on an energetic 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 signifies 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’ve a focus like by no means earlier than on this planet. And that was very good on the way in which up. I feel it’ll 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 need to promote what they personal an excessive amount of of and people are the heavyweights of the Magnificent Seven as a result of should you wished to outperform, you needed to obese these Magnificent Seven, in any other case you might be completed.
And I not too long ago 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 may think about it’s. And if that’s true and the marketplace for no matter cause turns down, then you definately get the transfer down that will get exaggerated and has nothing to do with the true economic system. Individuals don’t perceive that because the transfer up right here doesn’t have a lot to do with the true economic system.
Meb:
Man, Felix, you touched on lots 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 once 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 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 assumed 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 stay TV I can work in Mama Mia.” However Italian shares have been having an awesome yr and so I assumed I couldn’t do it however I used to be in a position to 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 form of geopolitics, everyone seems to be so targeted within the macro world at all times on the massive occasions, what’s occurring in Ukraine, what’s occurring in Israel, elections, we obtained one developing within the US subsequent yr, Argentina. However the one which I’ve seen you write lots about is the significance of the Taiwanese election. Perhaps speak slightly bit about how that could be an essential function 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’ve individuals who favor getting nearer with China and you’ve got others which are towards it. And on January thirteenth there’s the following election and you’ve got two opposition events that collectively within the polls have 53% which are 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 might win the elections. I hoped that Xi or China would lean on these two events to some extent to make it occur. We now have 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 firms, Taiwanese semiconductors, they’re additionally working in China. And although I feel the alternate of know-how goes each methods and so they commerce and they’re pleasant, after all the Chinese language are sometimes aggressive with their army maneuvers et cetera. However I don’t see a conflict developing there.
I feel that might be dangerous. I feel the Taiwanese working in China are telling their individuals again residence they’re handled very properly, they make an excellent dwelling, every part is okay. And over time, if no person 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 happy.
Meb:
Properly, it’s fascinating, we have been speaking about this the opposite day with any individual the place everyone seems to be so excited and sizzling bothered about loads of the American giant tech. And significantly while you’re speaking about investments in shares, American semiconductor firms.
And should you look in Taiwan and elsewhere, South Korea particularly, there occurs to be loads 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 were two, three baggers this yr alone.
It’s at all times 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 like a whole 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 perhaps 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 feel capital could then go to different locations as soon as every part is settled out and we’ve got a brand new world order that appears to be steady. However we undergo this order and the volatility in geopolitics for one more 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 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 kind of idea the place it simply dragged the entire market cap weight up. Are there another durations you suppose that this sort of feels slightly like or related so far as we have a look at the playbook on what could 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 and so they obtained a really excessive a number of due to that and the cash was flowing into them and ultimately many of the shares with a number of exceptions declined badly thereafter and a few even disappeared.
Meb:
One of many massive 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 looks like now in the USA’ most really feel prefer it’s conquered and is finished with. How do you kind of have a look at this twin matter, and you’ll take this the place you’re feeling applicable, of each inflation and bonds? I’ve seen you speak lots about optimism and the bond mounted revenue world is fairly excessive proper now. What’s your ideas on that normal space of mounted revenue and inflation?
Felix:
Properly, initially, 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 continually 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 vitality out and meals out as a result of they stated, “We can’t management it,” as if individuals wouldn’t drive automobiles and wouldn’t eat. It’s nonsense, after all.
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 feel there are loads of foolish video games being performed and should you take the basket of 1990, you might be at 9 or 10 p.c 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 apart from this yr.
This yr is the primary time in just about 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 perhaps 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 meaning it’ll backside out subsequent yr after which it goes up.
And if I’m proper in regards to the recession subsequent yr and so they inject liquidity, that can 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’ve got seen lately will make commodities rise very, very dramatically in my opinion.
So you’ll have in all probability an oil worth in 26 of 150, 200 {dollars}. That provides 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 obtained to be worse as a result of while 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 after all the query is can our system deal with that? And I feel it can’t. We may have a disaster. We may have in all probability probably the most extreme recession disaster within the later 20s. And that’s what we in all probability must make the structural adjustments in our authorities’s expenditures and revenue assertion. That may solely be made throughout a disaster.
You can not lower entitlements and you can not elevate taxes dramatically in case you are in a pleasing circumstance, if every part goes regular. However in case you are in a painful disaster that hurts everybody and the world is wanting 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 must 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 traders. Properly, there’s one specifically that’s nudging at all-time highs proper now and that’s after all the shiny metallic that generates in all probability extra various opinions than virtually something on the market apart 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 distinct story. What are you eager about the shiny metallic, do you suppose 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 while you go right into a disaster, gold is cash while you want it as a result of your individual debased fiat cash, perhaps no person needs 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 individuals shopping for fits for 2000, 3000 {dollars} and that’s in all probability the worth 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 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 are going to 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 p.c of their belongings. So gold just isn’t extensively owned and I feel it will likely be extra extensively owned as costs go up. Most individuals purchase essentially the most on the high 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 truly attempting to do it the place they have been promoting gold bars at Costco and so they instantly bought out after all. So I’m going to look ahead into the following couple of years when Costco turns into the largest distributor of gold bars on this planet.
I discovered an awesome 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 individuals like them. So I don’t know what, perhaps 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 must get my passport and go journey slightly bit whereas I obtained the time and the possibility on the, let’s speak in regards to the greenback and world currencies. Is it loads of the Quants will say that buying energy parity US greenback is dear. Is that your view? What do you concentrate on the worldwide FX market, the place there’s alternative the place we must 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 generally 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, 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 will merely make a brand new legislation towards foreigners and also you lose every part, as occurred in Russia. And subsequently, I feel 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 remains 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 once they start to ease subsequent yr, then I feel in some unspecified time in the future from summer time on or so, the greenback could have a much bigger drawback and should 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 obtained to journey.
Felix:
Yeah.
Meb:
Proper. Proper. Proper. Proper.
Felix:
Yeah. Yeah. That’s proper. Yeah, it’s important to journey. It’s important to 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 positively 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 massive Magazine Seven, are there pockets of the US or specific nations elsewhere that you just’re all in favour of? 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 seems lots higher different than simply avoiding the massive 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. Most of the cyclicals and worth shares usually are not costly. They’re cheaply priced, they’re under-owned and that’s what I need to purchase within the subsequent decline. Proper now we’ve got one sector going towards the market that’s vitality. Vitality can be a beautiful sector going ahead, however it’s now correcting as a result of the worth 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 every part is rosy whereas the commodity markets and oil specifically is telling us it’s not so positive, 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 a number of months’ time, then I feel it’s a beautiful place to purchase vitality producers, oil producers and fuel producers in good jurisdictions, in protected jurisdictions.
So North America can be an excellent place. Shares that produce in North America I feel would be the front-runners. They’re enticing. I additionally suppose that the commodity associated shares, producers of copper and aluminum and people issues can be enticing shares within the subsequent cycle, however it’s too early to purchase. They can even go down with the market however to not the identical diploma as the expansion shares.
And normally when you’ve 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 are bought out and also you should not have the promoting stress. Whereas these which are over-owned, they’re declining greater than others.
You need to purchase on the backside those which are under-owned and don’t decline as a lot. So it’s important to examine relative efficiency throughout the decline. And I feel one can find many enticing firms among the many industrials and the cyclicals commodity associated additionally, vitality 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 largest shock of 2024 or so otherwise, what do you suppose goes to be the largest shock of the yr?” Something in that class of what you suppose may be the massive shock? Or we touched on it already.
Felix:
The large 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 must pay my bills. Let’s go forward and guide these.
Felix:
Completely. It’s important to perceive that the Japanese didn’t tighten coverage and so they 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 is not going to ease as a result of they’ve been straightforward 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 are 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 meaning 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 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 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 certainly one of my higher trades. I used loads of choices and I had certainly one of my superb years in these in 1998. Yeah.
Meb:
You could have fairly a number of 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 may very well be a framework, it doesn’t need to be a present opinion, however it may very well 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 almost all of your skilled friends, not retail, however skilled friends could not agree with you on.
Felix:
5 years in the past I began to write down about coming wars and all people was shaking their heads and so they laughed at me truly. And now we’ve got wars and I feel the wars will intensify, they’ll develop greater. We may have extra wars and we run the chance of a conflict the place the massive guys get entangled. I wouldn’t say that Chinese language tanks will roll by way of the US or so, however I feel it may very well be a conflict the place we attempt to sabotage their electrical grid and so they ours and the web and issues like that.
And it will do loads of injury ultimately to our economies. And I feel this isn’t taken into consideration once I hearken to Wall Road, the mainstream guys. They go and so they have their playbook, they’ve their formulation, and I feel these formulation within the subsequent few years you possibly can throw out of the window. It doesn’t work that manner.
Meb:
Is there something usually 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 essential concept of the [inaudible 00:35:40] entice. That is when you’ve a scenario the place you’ve a hegemon that controls every part on this planet or in a area and abruptly new energy rises comes up and challenges the man, then you’ve a battle. And that battle scenario we’ve got seen within the final 500 years, 16 occasions. 12 occasions, 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 at all times 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 may 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 might again the BRICS facet. It’s a really harmful scenario. I’ve not too long ago heard that it’s the primary time that the Israeli commando should at all times 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 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 may very well be good, it may very well be dangerous, it may very well be in between, however simply the one which seared into your mind.
Felix:
Probably the most memorable funding was a foul funding. That at all times… The great investments you speak about, however the dangerous 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 assumed it could 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 previous at the moment and it damage. I needed to flip the display 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 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 damage badly and I always remember that and it taught me the lesson by no means attempt to be tremendous good. Sensible alone is sweet sufficient.
Meb:
Yeah. Silver, we didn’t point out but right now, however I used to be attempting to drag up a chart to see the place we’re sitting right now as gold is pulling it up. Proper round 20, 24, 25. So.
Felix:
Yeah. Yeah.
Meb:
Not all time highs. So perhaps we obtained slightly catch-up to be doing.
Felix:
I feel silver can be fascinating .and significantly from subsequent yr on, I feel silver on the way in which up, as soon as the valuable metallic cycle begins to achieve traction, then I feel silver will outperform gold on the way in which up. It’s an industrial metallic. It’s not the financial metallic. However nonetheless, I feel it’ll break 50 and go to new highs.
Meb:
Properly, you heard it right here. Felix, if individuals need to observe your writing, your analysis, your consulting, the place do they go? What’s one of the best 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 right now and completely happy holidays to you and all of yours.
Felix:
Glad holidays to you too. And thanks very a lot for having me. It’s been an honor. Thanks, Meb
Meb:
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