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 options? Thinking 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 seems to be like as 2023 winds down
3:30 – Why China shouldn’t be inquisitive 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 fastened 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
Be taught extra about Felix : FelixZulauf.com
Transcript:
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Disclaimer:
Meb Faber is the co-founder and chief funding officer at Cambria Funding Administration. Because of trade rules, he is not going to talk about any of Cambria’s funds on this podcast. All opinions expressed by podcast individuals are solely their very own opinions and don’t replicate the opinion of Cambria Funding Administration or its associates. For extra data, go to cambriainvestments.com.
Meb:
Whats up, 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 skilled Felix Zulauf, founding father of Zulauf Consulting. He was beforehand the worldwide strategist for UBS and later ran his personal asset administration agency.
In at present’s episode, Felix shares his view of the worldwide funding panorama from Asia to Europe to the US. He shares why the tailwinds of decrease inflation 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 indicate.
Felix:
My pleasure. Thanks for having me, Meb.
Meb:
I’m so excited to have you ever. I’ve been wanting to speak to you for a very long time. The place do we discover you this morning? This night?
Felix:
Yeah, it’s early night in Switzerland, simply again from my place in Florida. Change to colder climate.
Meb:
Nicely, it’s at all times been a problem for me to regulate to California in the course of 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 appears like a magical time this time of yr.
Felix:
I’m unsure it’s. We’ve no snow proper now down within the cities, so it will be good to have snow over Christmas time.
Meb:
So we’re going to bounce all world wide this chat. Why don’t we get began together with your perch from over there in Switzerland, views of the worldwide financial system, what’s happening? There’s been some macro forces, lots of people wringing their arms this yr about potential recessions. And I believe everybody retains ready for one to return and right here within the US and it simply looks as if it’s at all times within the horizon. What’s the world seem like to you at present as we wind down 2023?
Felix:
We’ve three areas in very completely different standing. We’ve China that’s type of weakish. It has misplaced its momentum. It has to digest the overhang from the actual property growth and the credit score growth and that can take no less than 10 years if not longer. So China is not going to be a locomotive to the world financial system for a lot of, a few years.
China is attempting to handle by means of this and the restructure step-by-step, present stimulus to assist however not stimulus to development. It’s not on the Chinese language agenda to create excessive development. First rate development, three, 4 % is sweet sufficient for them and in actuality, three or 4 % what they publish might be one to 2 %, no more than that.
Meb:
And are you choosing that up from sort of what they’ve been saying is the perception reasonably from simply indicators you’re ? What makes you come to type of that perception as you look to the far East?
Felix:
I’ve mentioned that for a few years. 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 models of house in the entire us. The overhang of empty houses in China is about 100 million. In order that’s rather a lot to digest and sadly they don’t have a inhabitants that’s rising.
It’s truly shrinking barely, however it would speed up the shrinking over time. So there is no such thing as a method they will develop out of the issue. That’s unattainable. Subsequently, 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 they usually need to recapitalize the banking trade they usually need to monetize a variety of 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 our issues, structural issues as properly. And I believe that can solely come within the second half of the 20s. However we are going to run into a serious disaster in a couple 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 achieve this.
Lately, 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 foreign money. They didn’t need their foreign money to go down and break down badly. They need to maintain every part in stability till 2024 once 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 will do it additionally, however in any other case it will harm them.
Then we’ve Europe. Europe is the massive loser on this entire 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 this planet actually. Economically they’ve been sturdy, it’s a giant market, however all of them depend upon China for exports and US for exports and US on protection and they’re going to come out very weak.
The financial system is struggling notably in these areas the place they attempt to go inexperienced and the off gas led power and nuclear power like Germany that’s very weak. They’re destroying the German financial system truly. Different elements are doing a bit bit higher. Spain is doing very properly. Italy has now outperformed Germany I believe for nearly 4 years.
So internet I might say Europe is type of stagnating borderline to recession. And if the US goes into recession, we are going to 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 yr and a half or so will ultimately be felt throughout 2024.
However the consensus of a tender touchdown may be very pronounced. And what I’ve discovered in my profession is when you have got such a pronounced consensus and all of the consultants and forecasts agree, one thing else goes to occur. So I believe the financial system will first be a bit bit stronger than anticipated after which weaker than anticipated and fall into recession. And that ought to harm the company earnings.
Let’s say it’s going to be a light recession as a result of we should not have an enormous stock overhang or something of that kind. That would imply that company income let’s say go down 10%. It might go down extra however let’s say delicate 10%. Often in a recession they go down 25%. And you’re taking a backside, a bear market backside, a a number of of 16, you arrive at about 3,500.
That’s not what individuals bear in mind after they enter the market lately. And really the market has some technical points which might be 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 best way up can pull the market index up dramatically as finished this yr.
The 493 shares didn’t in addition to the Magnificent Seven, however remember the fact that whenever you put money into a passive method and also you index or whenever you put money into an energetic method and also you do closet indexing as most guys are doing, then you find yourself with most likely 80% of the fairness invested worldwide is benchmarked. And that implies that when you put money into 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 have got a focus like by no means earlier than on this planet. And that was very good on the best way up. I believe it would exaggerate the transfer on the best way down. So when a correction comes, when managers are hit with redemptions, after 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 when you needed to outperform, you needed to chubby these Magnificent Seven, in any other case you might be finished.
And I just lately learn a report that mentioned 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, you then get the transfer down that will get exaggerated and has nothing to do with the actual financial system. Folks don’t perceive that because the transfer up right here doesn’t have a lot to do with the actual financial system.
Meb:
Man, Felix, you touched on rather a lot there, so we’re going to dive into a couple of issues. The primary, I used to be laughing as you had 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 among the stuff that’s the every day subject.”
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 method on stay TV I can work in Mama Mia.” However Italian shares had been having an amazing yr and so I assumed I couldn’t do it however I used to be capable of squeeze it in. I don’t suppose anybody perceive what I used to be speaking about, however I had an viewers of 1 so I lastly made it.
Okay, so there’s a handful of issues that I 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 targeted within the macro world at all times on the massive occasions, what’s happening in Ukraine, what’s happening in Israel, elections, we acquired one arising within the US subsequent yr, Argentina. However the one which I’ve seen you write rather a lot about is the significance of the Taiwanese election. Perhaps speak a bit bit about how which may be an vital position or an vital 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 throughout the subsequent 5 years.
That was a giant mistake. It mustn’t have put a time restrict on that. In Taiwan you have got individuals who favor getting nearer with China and you’ve got others which might be towards it. And on January thirteenth there may be the subsequent election and you’ve got two opposition events that collectively within the polls have 53% which might be in favor of getting nearer with China. Not integrating utterly however getting nearer with China.
Sadly the 2 couldn’t 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 to attend for the end result, however you even have to grasp 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 believe the alternate of know-how goes each methods they usually 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 arising there.
I believe that might be dangerous. I believe the Taiwanese working in China are telling their individuals again house they’re handled very properly, they make an excellent residing, every part is ok. And over time, if no person would provoke, over time the 2 would get nearer collectively. The Taiwanese by the best way, 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 comfortable.
Meb:
Nicely, it’s fascinating, we had been speaking about this the opposite day with any individual the place everyone seems to be so excited and scorching bothered about a variety of the American massive tech. And notably whenever you’re speaking about investments in shares, American semiconductor corporations.
And when you look in Taiwan and elsewhere, South Korea particularly, there occurs to be a variety of semiconductor corporations, additionally ones that commerce at a a lot bigger valuation low cost than among the ones in america do, together with a couple 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, but it surely 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 must 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 part is settled out and we’ve 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 pondering 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 type of idea the place it simply dragged the entire market cap weight up. Are there another durations you suppose that this type of feels a bit like or comparable so far as we have a look at the playbook on what could 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 acquired a really excessive a number of due to that and the cash was flowing into them and ultimately a lot of the shares with a couple of exceptions declined badly thereafter and a few even disappeared.
Meb:
One of many huge matters for the previous couple years, actually right here but in addition actually in different international locations like Argentina has been inflation. And inflation actually spiked to fairly worrisome ranges and it looks like now in america’ most really feel prefer it’s conquered and is finished with. How do you type of have a look at this twin subject, and you’ll take this the place you are feeling acceptable, of each inflation and bonds? I’ve seen you speak rather a lot about optimism and the bond fastened revenue world is fairly excessive proper now. What’s your ideas on that normal space of fastened revenue and inflation?
Felix:
Nicely, to begin with, the patron worth index has by no means gone down. It has at all times gone up. And inflation is the speed of change of the patron worth index. They usually consistently 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 mentioned, “We can’t management it,” as if individuals wouldn’t drive vehicles and wouldn’t eat. It’s nonsense, after all.
And just lately they took out healthcare insurance coverage premiums and changed it with healthcare insurance coverage firm’s income as a result of the one went down and the opposite went up. So I believe there are a variety of foolish video games being performed and when you take the basket of 1990, you might be at 9 or 10 % inflation this present day within the US. And I come to the US for 50 years and in all these 50 years eating places have at all times been cheaper than in Switzerland aside from this yr.
This yr is the primary time in nearly 50 years that the US was costlier than Switzerland. And that tells you that the US has an inflation 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 right down to 2% or one thing like that subsequent yr, however the cycle behaves very a lot based on 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 concerning the recession subsequent yr they usually 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 seen in recent times will make commodities rise very, very dramatically in my opinion.
So you’ll have most likely an oil worth in 26 of 150, 200 {dollars}. That offers you a CPI of greater than 10%. So I believe we may 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 whenever you go the second time over 10%, I don’t imagine that the 10-year treasuries will keep at 5. After which when 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 may have a disaster. We may have most likely one of the crucial extreme recession disaster within the later 20s. And that’s what we most likely must make the structural adjustments in our authorities’s expenditures and revenue assertion. That may solely be made throughout a disaster.
You can not reduce entitlements and you can’t increase 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 believe 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 believe is tough for lots of traders. Nicely, there’s one specifically that’s nudging at all-time highs proper now and that’s after all the shiny steel that generates most likely extra diverse opinions than virtually something on the market aside 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 take heed 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 occupied with the shiny steel, 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 whenever you go right into a disaster, gold is cash whenever you want it as a result of your personal debased fiat cash, possibly no 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 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. 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 believe from that theoretical cycle low, which is able to most likely 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 just lately seen a survey amongst American traders, 71% of these polled confirmed they owned between zero and one % of their property. So gold shouldn’t be extensively owned and I believe it is going to be extra extensively 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 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 had 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 largest distributor of gold bars on this planet.
I discovered an amazing reality this yr that Costco places out, it’s sells one thing like half of the world’s cashews. Which I believe is the worst of all of the nuts, listeners, however individuals 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 must get my passport and go journey a bit bit whereas I acquired the time and the possibility on the, let’s speak concerning the greenback and world currencies. Is it a variety of the Quants will say that buying energy parity US greenback is pricey. Is that your view? What do you 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 anticipate to finish typically within the first quarter, most likely along with when the inventory market tops out. And from then I anticipate 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’t belief these jurisdictions. They’ll merely make a brand new regulation towards foreigners and also you lose every part, as occurred in Russia. And due to this fact, I believe capitalists from everywhere in 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 largest pond tightens greater than all of the others little ponds. And after they start to ease subsequent yr, then I believe sooner or later from summer time on or so, the greenback could have a much bigger downside and will decline fairly sharply. You misunderstood me, I mentioned the US is costlier than Switzerland, not the opposite method 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, you must journey. It’s a must to journey.
Meb:
My listeners are bored with 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 positively 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 massive Magazine Seven, are there pockets of the US or specific international locations elsewhere that you just’re inquisitive about? It could possibly be kinds like worth development, it could possibly be sectors, it could possibly be international locations? Something that you just’re say, “Okay, this seems to be rather a lot higher different than simply avoiding the massive dudes.”
Felix:
I believe we’re nearly altering from development to worth. We’re within the late stage of this pull cycle from final yr’s low final fall. It’s the third up leg and that up leg when it ends will more than likely 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 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 one sector going towards the market that’s power. Power might 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 completely 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 effective, 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 lovely place to purchase power producers, oil producers and fuel producers in good jurisdictions, in secure jurisdictions.
So North America could be an excellent place. Shares that produce in North America I believe would be the front-runners. They’re enticing. I additionally suppose that the commodity associated shares, producers of copper and aluminum and people issues might be enticing shares within the subsequent cycle, but it surely’s too early to purchase. They will even go down with the market however to not the identical diploma as the expansion shares.
And often when you have got a change in management, it’s often throughout a down cycle, throughout a downdraft the place these sectors that decline lower than others, these are those which might be offered out and also you should not have the promoting strain. Whereas these which might be over-owned, they’re declining greater than others.
You need to purchase on the backside those which might be under-owned and don’t decline as a lot. So you must examine relative efficiency in the course of the decline. And I believe you will see 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 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, most likely 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 could be the massive shock? Or we touched on it already.
Felix:
The large 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 must pay my bills. Let’s go forward and guide these.
Felix:
Completely. It’s a must to 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 is not going to ease as a result of they’ve been straightforward all the best way and due to this fact 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 largest funding foreign money.
When you must finance a undertaking, you at all times go to the currencies which might be the most cost effective to fund and the weakest, low cost and weak. Rates of interest had been low, the foreign money was weak, that was the best foreign money. What which means is that you’ve an enormous [inaudible 00:32:41] place on the market from these financings.
And when the development adjustments, and it most likely has already modified, when that development 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 sturdy 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 certainly one of my higher trades. I used a variety of choices and I had certainly one of my excellent years in these in 1998. Yeah.
Meb:
You’ve 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 could possibly be a framework, it doesn’t need to be a present opinion, but it surely 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 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 everyone was shaking their heads they usually laughed at me truly. And now we’ve wars and I believe the wars will intensify, they are going to develop larger. We may have extra wars and we run the chance of a conflict the place the massive guys become involved. I wouldn’t say that Chinese language tanks will roll by means of the US or so, however I believe 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 may do a variety of injury ultimately to our economies. And I believe this isn’t taken into consideration once I take heed 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 may throw out of the window. It doesn’t work that method.
Meb:
Is there something usually that sort 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 sort of macro points?
Felix:
It’s the essential concept of the [inaudible 00:35:40] lure. That is when you have got a scenario the place you have got a hegemon that controls every part on this planet or in a area and impulsively new energy rises comes up and challenges the man, then you have got a battle. And that battle scenario we’ve seen within the final 500 years, 16 occasions. 12 occasions, it led to direct conflict 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 could be inescapable, the battle would come. It at all times begins with straight conflicts after which it turns into ultimately militarily.
And I believe we’re 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 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’d again the BRICS aspect. It’s a really harmful scenario. I’ve just lately 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 develop into. So that’s one thing I’m very anxious 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 dangerous, it could possibly 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 keep on 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 assumed it will 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 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 will decline to 12 backside within the 12, 10 space after which bounced again to 24. So I waited and about six months later I purchased 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 sensible. Sensible alone is sweet sufficient.
Meb:
Yeah. Silver, we didn’t point out but at present, however I used to be attempting to tug up a chart to see the place we’re sitting at present as gold is pulling it up. Proper round 20, 24, 25. So.
Felix:
Yeah. Yeah.
Meb:
Not all time highs. So possibly we acquired a bit catch-up to be doing.
Felix:
I believe silver might be fascinating .and notably from subsequent yr on, I believe silver on the best way up, as soon as the valuable steel cycle begins to realize traction, then I believe silver will outperform gold on the best way up. It’s an industrial steel. It’s not the financial steel. However however, I believe it’ll break 50 and go to new highs.
Meb:
Nicely, you heard it right here. Felix, if individuals need to comply with your writing, your analysis, your consulting, the place do they go? What’s the very best place to search out extra details about you and what you’re as much as?
Felix:
You go to www.felixzulauf.com and you’ll write to [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 comfortable holidays to you and all of yours.
Felix:
Completely happy holidays to you too. And thanks very a lot for having me. It’s been an honor. Thanks, Meb
Meb:
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