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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 at present’s episode, Felix shares his view of the worldwide funding panorama from Asia to Europe to the US. He shares why the tailwinds of decrease inflation 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 solutions? Desirous about sponsoring an episode? E mail us [email protected]
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 will not be excited about excessive development
- 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 at present
- 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 greatest 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 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. Because of trade 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:
Hiya, my pals. We acquired an episode at present. I’ve been wanting ahead to this dialog for a protracted, very long time. Excited to share our chat with well-known macro 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 at present’s episode, Felix shares his view of the worldwide funding panorama from Asia to Europe to the US. He shares why the tailwinds of decrease inflation 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 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:
Properly, it’s all the time been a problem for me to regulate to California throughout 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 12 months.
Felix:
I’m undecided it’s. We now have 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 along 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 palms this 12 months 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 all the time within the horizon. What’s the world seem like to you at present as we wind down 2023?
Felix:
We now have three areas in very completely 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 growth and the credit score growth and that may take a minimum of 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 attempting to handle via 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 p.c is nice 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 type 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 great. And give it some thought, the US has what? 140 million models of dwelling in the entire us. The overhang of empty houses in China is about 100 million. In order that’s so much to digest and sadly they don’t have a inhabitants that’s rising.
It’s really shrinking barely, however it can speed up the shrinking over time. So there is no such thing as a approach they’ll develop out of the issue. That’s unattainable. Due to this fact, 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 numerous the debt.
However they are going to solely achieve this 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 nicely. And I believe that may solely come within the second half of the 20s. However we’ll run into a serious disaster in a couple of years’ time, fiscal disaster, et cetera, after which we’ll attempt to stimulate out of it. And as soon as the western world stimulates, the Chinese language will achieve this.
Lately, in opposition to the expectation of many of the specialists China tighten financial coverage, which the western world didn’t perceive, however they did so to guard their foreign money. They didn’t need their foreign money to go down and break down badly. They need to preserve every little thing in steadiness till 2024 after we most likely have a recession within the US and central financial institution will start to chop charges and the pump liquidity into the system. Then they’ll do it additionally, however in any other case it might harm them.
Then we’ve got Europe. Europe is the large loser on this entire sport of rivalry and new association of world order. Europe is weak, it has no military to talk of that may defend its personal territory they usually don’t have any saying on the earth actually. Economically they’ve been robust, it’s an enormous market, however all of them rely on 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 really. Different components are doing a bit of bit higher. Spain is doing very nicely. Italy has now outperformed Germany I believe 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’ll most likely additionally go into recession and the recession will deepen considerably. The US is the odd man. It has been the strongest financial system, offered some huge cash to the individuals to spend. And that fiscal assist helped after all. And I believe the tightening during the last 12 months and a half or so will ultimately be felt throughout 2024.
However the consensus of a smooth touchdown could be very pronounced. And what I’ve discovered in my profession is when you’ve gotten such a pronounced consensus and all of the specialists and forecasts agree, one thing else goes to occur. So I believe the financial system will first be a bit of 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 don’t have an enormous stock overhang or something of that kind. That might imply that company income let’s say go down 10%. It might go down extra however let’s say gentle 10%. Normally 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 individuals take into account once they enter the market today. And really the market has some technical points which are very harmful. And I’m referring to the great 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 accomplished this 12 months.
The 493 shares didn’t in addition to the Magnificent Seven, however needless to say once you spend money on a passive approach and also you index or once you spend money on an energetic approach and also you do closet indexing as most guys are doing, then you find yourself with most likely 80% of the fairness invested worldwide is benchmarked. And that implies that in case you spend money on 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’ve gotten a focus like by no means earlier than on the earth. 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 lift 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 in case you needed to outperform, you needed to chubby these Magnificent Seven, in any other case you might be accomplished.
And I not too long ago learn a report that stated the big hedge funds within the US have 70% of their equities in 10 positions. I’m undecided 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 cause turns down, then you definitely 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 so much there, so we’re going to dive into a couple of issues. The primary, I used to be laughing as you have been speaking about Italy as a result of one in every of my favourite issues to do after 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 simply’ll watch it and make it enjoyable for me, as a result of in any other case I get bored speaking about a few of the stuff that’s the day by day matter.”
And I believed he lastly defeated me this time as a result of in years previous it was phrases like “Ninja” or “Blah blah blah” or a meme and this time it was “Mama Mia.” And I’m like, “There’s no approach on dwell TV I can work in Mama Mia.” However Italian shares have been having an ideal 12 months and so I believed 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 type of geopolitics, everyone seems to be so targeted within the macro world all the time on the large occasions, what’s occurring in Ukraine, what’s occurring in Israel, elections, we acquired one arising within the US subsequent 12 months, Argentina. However the one which I’ve seen you write so much about is the significance of the Taiwanese election. Perhaps discuss a bit of bit about how that could be an necessary function or an necessary level within the subsequent few years so far as geopolitics and macro and markets.
Felix:
The Taiwanese are additionally Chinese language initially. And I believe China and Taiwan over the long run will unite and get collectively. It’s pure. 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 concerning 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 an enormous mistake. It mustn’t have put a time restrict on that. In Taiwan you’ve gotten individuals who favor getting nearer with China and you’ve got others which are in opposition to 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 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 may 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 grasp that about 10% of the Taiwanese workforce already energetic in China.
They work there and the specialists and the engineers from semiconductor corporations, Taiwanese semiconductors, they’re additionally working in China. And although I believe the alternate of know-how goes each methods they usually commerce and they’re pleasant, after all the Chinese language are often aggressive with their navy maneuvers et cetera. However I don’t see a warfare arising there.
I believe that will be dangerous. I believe the Taiwanese working in China are telling their individuals again dwelling they’re handled very nicely, they make dwelling, every little thing is okay. And over time, if no one would provoke, over time the 2 would get nearer collectively. The Taiwanese by the way in which, every time they made a brand new innovation or new chip or so that they all the time gave China a 3 to 4 months lead over others to maintain them joyful.
Meb:
Properly, it’s fascinating, we have been speaking about this the opposite day with anyone the place everyone seems to be so excited and sizzling bothered about numerous the American massive tech. And notably once 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 a few of the ones in the USA do, together with a couple of which were two, three baggers this 12 months 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 believe the catalyst might be when the Magnificent Seven decline, that would be the set off. After which you’ll have possibly one other yet one more 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 could then go to different locations as soon as every little thing is settled out and we’ve got a brand new world order that appears to be secure. 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 considering of phrases like NIFTY 50. You return and skim a few of these books about a few of the shares you simply needed to personal. You couldn’t not personal a few of these 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 durations you suppose that this type of feels a bit of like or comparable so far as we take 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 they usually acquired a really excessive a number of due to that and the cash was flowing into them and ultimately many of the shares with a couple of exceptions declined badly thereafter and a few even disappeared.
Meb:
One of many large subjects for the previous couple years, definitely right here but additionally definitely in different nations like Argentina has been inflation. And inflation definitely 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 take a look at this twin matter, and you’ll take this the place you are feeling applicable, of each inflation and bonds? I’ve seen you discuss so much about optimism and the bond mounted earnings world is fairly excessive proper now. What’s your ideas on that common space of mounted earnings and inflation?
Felix:
Properly, to begin with, the buyer worth index has by no means gone down. It has all the time 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’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 believe there are numerous foolish video games being performed and in case you take the basket of 1990, you might be at 9 or 10 p.c 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 apart from this 12 months.
This 12 months is the primary time in just about 50 years that the US was dearer than Switzerland. And that tells you that the US has an inflation drawback. And naturally the speed of change goes down and the bottom impact helps and commodities are serving to, oil helps and we get possibly right down to 2% or one thing like that subsequent 12 months, however the cycle behaves very a lot in keeping with the cycle within the late 60s and 70s and meaning it’ll backside out subsequent 12 months after which it goes up.
And if I’m proper concerning the recession subsequent 12 months they usually inject liquidity, that may make commodities go up and also you compound that by the rivalry between the BRICS and the G7 and the BRICS management three quarters of the commodities of the world and they’ll make it most price than ever. And the underinvestment we’ve got seen lately will make commodities rise very, very dramatically for my part.
So you’ll have most likely an oil worth in 26 of 150, 200 {dollars}. That provides you a CPI of greater than 10%. So I believe we can have one other inflation cycle forward of us and I believe within the subsequent inflation cycle the bond markets might be crushed much more badly than within the final one. And within the final one was fairly heavy.
I imply, a 20-year treasury ETF went down 50% from 2020 to 23. And I believe subsequent time it’s acquired to be worse as a result of once 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 after all the query is can our system deal with that? And I believe it can’t. We can have a disaster. We can have most likely one of the extreme recession disaster within the later 20s. And that’s what we most likely have to make the structural adjustments in our authorities’s expenditures and earnings assertion. That may solely be made throughout a disaster.
You can’t lower entitlements and you can not elevate taxes dramatically in case you are in a pleasing circumstance, if every little thing goes regular. However in case you are in a painful disaster that hurts everybody and the world is wanting very grim, then I believe you are able to do it. Then the politicians can promote it to their constituencies. All of us 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 tough for lots of buyers. Properly, there’s one particularly that’s nudging at all-time highs proper now and that’s after all the shiny metallic that generates most likely extra various opinions than nearly something on the market apart from my Aussie and Canadian pals, 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 pals, it’s a unique story. What are you enthusiastic 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 shifting 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 once you go right into a disaster, gold is cash once you want it as a result of your personal debased fiat cash, possibly no one 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 price about an costly swimsuit. So there are individuals shopping for fits for 2000, 3000 {dollars} and that’s most likely the worth vary. Gold is on an eight-year cycle. Once you return, it’s a fairly common eight 12 months 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 most likely be a better worth than now, we’ll see an acceleration on the upside for about 4 years. So I’m fairly constructive on gold. I’ve not too long ago seen a survey amongst American buyers, 71% of these polled confirmed they owned between zero and one p.c of their belongings. So gold will not be extensively owned and I believe it will likely be extra extensively owned as costs go up. Most individuals purchase essentially the most on the prime and never on the backside.
Meb:
I laughingly joined Costco as a result of I used to be attempting, I don’t know if it was a promotion, they’re attempting to get press or they’re really attempting to do it the place they have been promoting gold bars at Costco they usually instantly offered out after all. So I’m going to look ahead into the subsequent couple of years when Costco turns into the most important distributor of gold bars on the earth.
I discovered an ideal reality this 12 months that Costco places out, it’s sells one thing like half of the world’s cashews. Which I believe is the worst of all of the nuts, listeners, however individuals like them. So I don’t know what, possibly Costco places some magic seasoning mud on these. So tied together with this matter of gold, inflation, you talked about the US being cheaper than Switzerland.
So my takeaway from all that is I have to get my passport and go journey a bit of bit whereas I acquired the time and the prospect on the, let’s discuss concerning 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 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, most likely along with when the inventory market tops out. And from then I count on a restoration. I have no idea how lengthy it’ll will final, however in a non-safe world, once 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’t belief these jurisdictions. They’ll merely make a brand new regulation in opposition to foreigners and also you lose every little thing, as occurred in Russia. And subsequently, I believe capitalists from all around the world are nonetheless on the lookout for 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 remains to be the dominating foreign money on this entire foreign money 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 12 months, then I believe sooner or later from summer time on or so, the greenback could have an even bigger drawback and should decline fairly sharply. You misunderstood me, I stated the US is dearer than Switzerland, not the opposite approach round.
Meb:
Yeah. Yeah, US costly, so we acquired to journey.
Felix:
Yeah.
Meb:
Proper. Proper. Proper. Proper.
Felix:
Yeah. Yeah. That’s proper. Yeah, it’s a must to journey. You need 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 undoubtedly enthusiastic about heading again to Japan. In order we speak about all these completely 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 excited about? It may very well be kinds like worth development, it may very well be sectors, it may very well be nations? Something that you simply’re say, “Okay, this seems so much 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 12 months’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 believe the expansion shares because of the 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’ve got one sector going in opposition to the market that’s power. Vitality might be a horny 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 really telling us a really completely different story from the inventory markets. The inventory markets are telling us every little thing is rosy whereas the commodity markets and oil particularly is telling us it’s not so wonderful, it’s not so good on the market. So, I believe when oil goes right down to let’s say 60 or beneath 60 in a couple of months’ time, then I believe it’s a horny place to purchase power producers, oil producers and gasoline producers in good jurisdictions, in secure jurisdictions.
So North America can be place. Shares that produce in North America I believe would be the front-runners. They’re enticing. I additionally suppose that the commodity associated shares, producers of copper and aluminum and people issues might be enticing shares within the subsequent cycle, 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 often when you’ve gotten 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 are offered out and also you don’t have the promoting strain. 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 a must to research relative efficiency throughout the decline. And I believe you will see that many enticing 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 12 months from now and Felix says, “Okay, that is wanting again on it, most likely the most important shock of 2024 or so in another way, what do you suppose goes to be the most important shock of the 12 months?” Something in that class of what you suppose may be the large shock? Or we touched on it already.
Felix:
The massive shock might be that the yen would be the strongest foreign money.
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 need to 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 foreign money 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 foreign money.
When it’s a must to finance a mission, you all the time go to the currencies which are the most cost effective to fund and the weakest, low-cost and weak. Rates of interest have been low, the foreign money was weak, that was the perfect foreign money. What meaning is that you’ve an enormous [inaudible 00:32:41] place on the market from these financings.
And when the pattern adjustments, and it most likely 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 foreign money, and the greenback was a really robust foreign money. 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 every of my higher trades. I used numerous choices and I had one in every of my superb years in these in 1998. Yeah.
Meb:
You may have fairly a couple 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 must 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 simply imagine that the majority 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 they usually laughed at me really. And now we’ve got wars and I believe the wars will intensify, they are going to develop larger. We can have extra wars and we run the chance of a warfare the place the large guys get entangled. I wouldn’t say that Chinese language tanks will roll via the US or so, however I believe it may very well be a warfare the place we attempt to sabotage their electrical grid they usually ours and the web and issues like that.
And it will do numerous harm ultimately to our economies. And I believe this isn’t taken into consideration after I hearken to Wall Avenue, the mainstream guys. They go they usually have their playbook, they’ve their formulation, and I believe these formulation within the subsequent few years you’ll be able to throw out of the window. It doesn’t work that approach.
Meb:
Is there something usually that type of on the time led you to that perception? Was it simply rhetoric from varied teams? Was it long-term tendencies so far as societal type of macro points?
Felix:
It’s the essential concept of the [inaudible 00:35:40] entice. That is when you’ve gotten a scenario the place you’ve gotten a hegemon that controls every little thing on the earth or in a area and swiftly new energy rises comes up and challenges the man, then you’ve gotten a battle. And that battle scenario we’ve got seen within the final 500 years, 16 instances. 12 instances, it led to direct warfare of the 2 rivals and thrice it led to deputy wars and just one time it labored with out wars.
And that was the change from the Mom of Nice Britain to the [inaudible 00:36:20] of the US. And I believe we’re in such a 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 believe we’re shifting 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 navy 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 not too long ago heard that it’s the primary time that the Israeli commando should all the time 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 grow to be. So that’s one thing I’m very frightened about.
Meb:
As you look again in your profession, that is going to be a tricky one, you talked about the yen already, what has been your most memorable funding? It may very well be good, it may very well be 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 nasty funding. That all the time… The great investments you speak about, however the dangerous investments you always remember.
Meb:
They follow 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 right down to 36 after which bounce to 45 or so. So at 36 I purchased silver, and as I purchased, it simply began to go down, down, down, down, down. And I offered 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 a couple 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 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 thrice 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 good. Good alone is nice sufficient.
Meb:
Yeah. Silver, we didn’t point out but at present, however I used to be attempting to drag up a chart to see the place we’re sitting at present as gold is pulling it up. Proper round 20, 24, 25. So.
Felix:
Yeah. Yeah.
Meb:
Not all time highs. So possibly we acquired a bit of catch-up to be doing.
Felix:
I believe silver might be fascinating .and notably from subsequent 12 months on, I believe silver on the way in which up, as soon as the valuable metallic cycle begins to realize traction, then I believe silver will outperform gold on the way in which up. It’s an industrial metallic. It’s not the financial metallic. However nonetheless, I believe 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 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 [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 at present and joyful 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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