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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 right this moment’s episode, Felix shares his view of the worldwide funding panorama from Asia to Europe to the US. He shares why the tailwinds of decrease inflation 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 strategies? Desirous about sponsoring an episode? Electronic 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 isn’t curious about excessive development
- 11:45 – How the Taiwanese election would possibly have an effect on markets
- 15:15 – Worth disconnect between the US & the remainder of the world
- 16:38 – Historic parallels to the market surroundings right this moment
- 17:38 – Ideas on mounted revenue and inflation
- 22:17 – Gold
- 25:20 – The US greenback and different currencies
- 31:21 – What’s going to largest shock in 2024?
- 33:36 – One thing Felix believes that of most his friends don’t
- 38:01 – Felix’s most memorable funding
- Study 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 can assist 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. On account of trade laws, 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:
Hey, my mates. We acquired an episode right this moment. I’ve been trying ahead to this dialog for an extended, very long time. Excited to share our chat with well-known macro skilled Felix Zulauf, founding father of Zulauf Consulting. He was beforehand the worldwide strategist for UBS and later ran his personal asset administration agency.
In right this moment’s episode, Felix shares his view of the worldwide funding panorama from Asia to Europe to the US. He shares why the tailwinds of decrease inflation 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 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:
Nicely, it’s all the time been a problem for me to regulate to California through 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 undecided it’s. We’ve got 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 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 yr about potential recessions. And I believe everybody retains ready for one to come back and right here within the US and it simply looks as if it’s all the time within the horizon. What’s the world seem like to you right this moment as we wind down 2023?
Felix:
We’ve got three areas in very totally different standing. We’ve got China that’s type of weakish. It has misplaced its momentum. It has to digest the overhang from the actual property increase and the credit score increase and that can take no less than 10 years if not longer. So China won’t be a locomotive to the world financial system for a lot of, a few years.
China is making an attempt to handle via this and the restructure step-by-step, present stimulus to help however not stimulus to development. It’s not on the Chinese language agenda to create excessive development. Respectable development, three, 4 % is nice 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 selecting that up from form of what they’ve been saying is the perception relatively 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 increase, actual property increase, the credit score increase, as soon as that’s over, the overhang is super. And give it some thought, the US has what? 140 million items of house in the entire us. The overhang of empty houses in China is about 100 million. In order that’s rather a lot to digest and sadly they don’t have a inhabitants that’s rising.
It’s truly shrinking barely, however it should speed up the shrinking over time. So there isn’t a means they will develop out of the issue. That’s unattainable. Subsequently, they should restructure, they should take the write-offs and finally they should recapitalize the native governments, that are the large gamers in that they usually should recapitalize the banking trade they usually should monetize loads of the debt.
However they may solely achieve this as soon as the western world is on the level to take action additionally, as a result of we now have our issues, structural issues as properly. And I believe that can solely come within the second half of the 20s. However we’ll run into a significant disaster in a number 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.
Not too long ago, in opposition to the expectation of a lot of the consultants China tighten financial coverage, which the western world didn’t perceive, however they did so to guard their forex. They didn’t need their forex to go down and break down badly. They wish to maintain every thing in steadiness 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 damage them.
Then we now have Europe. Europe is the large loser on this complete sport of rivalry and new association of world order. Europe is weak, it has no military to talk of that may defend its personal territory they usually don’t have any saying on the planet actually. Economically they’ve been 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 significantly in these areas the place they attempt to go inexperienced and the off gasoline led power and nuclear power like Germany that’s very weak. They’re destroying the German financial system truly. Different elements are doing a little bit bit higher. Spain is doing very properly. Italy has now outperformed Germany I believe for nearly 4 years.
So web I’d say Europe is type of stagnating borderline to recession. And if the US goes into recession, we’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, supplied some huge cash to the folks to spend. And that fiscal help helped after all. And I believe the tightening over the past yr and a half or so will finally be felt throughout 2024.
However the consensus of a tender touchdown could be very pronounced. And what I’ve realized 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 little bit 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 gentle recession as a result of we don’t 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 gentle 10%. Often in a recession they go down 25%. And you are taking a backside, a bear market backside, a a number of of 16, you arrive at about 3,500.
That’s not what folks keep in mind once they enter the market nowadays. And truly the market has some technical points which can be very harmful. And I’m referring to the super 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 performed this yr.
The 493 shares didn’t in addition to the Magnificent Seven, however needless to say once you spend money on a passive means and also you index or once you spend money on an energetic means 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 signifies that when 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 have got a focus like by no means earlier than on the planet. And that was very good on the way in which up. I believe it should 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 should promote what they personal an excessive amount of of and people are the heavyweights of the Magnificent Seven as a result of when you wished to outperform, you needed to chubby these Magnificent Seven, in any other case you’re performed.
And I lately learn a report that mentioned the massive 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 purpose turns down, then you definitely 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 number 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 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 means on reside TV I can work in Mama Mia.” However Italian shares had been having a fantastic yr and so I believed I couldn’t do it however I used to be capable of squeeze it in. I don’t assume anybody perceive what I used to be speaking about, however I had an viewers of 1 so I lastly made it.
Okay, so there’s a handful of issues that I’d like to get into. We’re going to get again to the Magnificent Seven in a minute, however one of many issues I’ve seen you write about as we’re speaking about form of geopolitics, everyone seems to be so targeted within the macro world 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 yr, Argentina. However the one which I’ve seen you write rather a lot about is the significance of the Taiwanese election. Perhaps discuss a little bit 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. After all 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 wish to combine Taiwan throughout the subsequent 5 years.
That was a giant mistake. It shouldn’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 can be in opposition to it. And on January thirteenth there may be the following election and you’ve got two opposition events that collectively within the polls have 53% which can be in favor of getting nearer with China. Not integrating utterly however getting nearer with China.
Sadly the 2 couldn’t 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’ve got 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 consultants and the engineers from semiconductor firms, Taiwanese semiconductors, they’re additionally working in China. And although I believe the trade of know-how goes each methods they usually commerce and they’re pleasant, after all the Chinese language are sometimes aggressive with their army maneuvers et cetera. However I don’t see a struggle arising there.
I believe that might be dangerous. I believe the Taiwanese working in China are telling their folks again house they’re handled very properly, they make a superb dwelling, every thing is ok. And over time, if no one would provoke, over time the 2 would get nearer collectively. The Taiwanese by the way in which, each time they made a brand new innovation or new chip or so that they all the time gave China a 3 to 4 months lead over others to maintain them pleased.
Meb:
Nicely, it’s fascinating, we had been speaking about this the opposite day with anyone the place everyone seems to be so excited and scorching bothered about loads of the American massive tech. And significantly once you’re speaking about investments in shares, American semiconductor firms.
And when 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 US do, together with a number of which were two, three baggers this yr alone.
It’s all the time fascinating to see the worth disconnect, which we’ve been speaking about for fairly a very long time, US versus the remainder of the world. I don’t know if there’ll ever be a catalyst for this to shut, however it looks as if a complete investing profession at this level.
Felix:
No, I believe the catalyst will likely be when the Magnificent Seven decline, that would be the set off. After which you’ll have perhaps one other 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 believe capital could then go to different locations as soon as every thing is settled out and we now have 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’m wondering is there a historic parallel or analog? In my head I’m considering of phrases like NIFTY 50. You return and browse 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 type of idea the place it simply dragged the entire market cap weight up. Are there some other intervals you assume that this sort of feels a little 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 finally a lot of the shares with a number 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 seems like now in the US’ most really feel prefer it’s conquered and is completed with. How do you type of have a look at this twin matter, and you may take this the place you are feeling applicable, of each inflation and bonds? I’ve seen you discuss rather a lot about optimism and the bond mounted revenue world is fairly excessive proper now. What’s your ideas on that common space of mounted revenue and inflation?
Felix:
Nicely, initially, the patron value index has by no means gone down. It has all the time gone up. And inflation is the speed of change of the patron value index. And so they consistently change the composition of the patron value 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 mentioned, “We can’t management it,” as if folks wouldn’t drive vehicles and wouldn’t eat. It’s nonsense, after all.
And 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 loads of foolish video games being performed and when you take the basket of 1990, you’re 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 all the time been cheaper than in Switzerland aside from this yr.
This yr is the primary time in nearly 50 years that the US was dearer than Switzerland. And that tells you that the US has an inflation downside. And naturally the speed of change goes down and the bottom impact helps and commodities are serving to, oil helps and we get perhaps right down to 2% or one thing like that subsequent yr, however the cycle behaves very a lot in keeping with the cycle within the late 60s and 70s and which means it’ll backside out subsequent yr after which it goes up.
And if I’m proper in regards to the recession subsequent yr they usually inject liquidity, that 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 now have seen lately will make commodities rise very, very dramatically in my opinion.
So you’ll have most likely an oil value 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 will likely be crushed much more badly than within the final one. And within the final one was fairly heavy.
I imply, a 20-year treasury ETF went down 50% from 2020 to 23. And I believe subsequent time it’s 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 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 some 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 revenue assertion. That may solely be made throughout a disaster.
You can’t reduce entitlements and you can not increase taxes dramatically in case you are in a nice circumstance, if every thing goes regular. However in case you are in a painful disaster that hurts everybody and the world is trying very grim, then I believe you are able to do it. Then the politicians can promote it to their constituencies. All of us should 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. Nicely, there’s one specifically that’s nudging at all-time highs proper now and that’s after all the shiny metallic that generates most likely extra diversified opinions than virtually something on the market aside from my Aussie and Canadian mates, they’re on board.
However you’ve talked about gold up to now. Most People, I really feel like that take heed to the present, don’t personal a lot of their portfolios. My Chinese language and Indian mates, it’s a distinct story. What are you enthusiastic about the shiny metallic, do you assume it’s fascinating, not fascinating, is hitting all-time highs right here?
Felix:
Gold is cash and also you see that bodily gold is transferring from the West to the worldwide South, China, Russia, different BRICS nations are shopping for it and the West is promoting it. And I 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, perhaps no one needs at the moment, however gold is all the time accepted. And gold is unstable, goes up and down.
It displays the debasement of the fiat currencies. Gold they are saying is all the time value about an costly swimsuit. So there are folks shopping for fits for 2000, 3000 {dollars} and that’s most likely the worth vary. Gold is on an eight-year cycle. Whenever you return, it’s a fairly common eight yr cycle and the cycle low, the theoretical cycle low is due subsequent summer season in summer season 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 can most likely be a better value than now, we’ll see an acceleration on the upside for about 4 years. So I’m fairly constructive on gold. I’ve lately seen a survey amongst American buyers, 71% of these polled confirmed they owned between zero and one % of their belongings. So gold isn’t extensively owned and I believe will probably be extra extensively owned as costs go up. Most individuals purchase probably the most on the high and never on the backside.
Meb:
I laughingly joined Costco as a result of I used to be making an attempt, I don’t know if it was a promotion, they’re making an attempt to get press or they’re truly making an attempt to do it the place they had been promoting gold bars at Costco they usually instantly offered 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 the planet.
I realized a fantastic truth this yr that Costco places out, it’s sells one thing like half of the world’s cashews. Which I believe is the worst of all of the nuts, listeners, however folks like them. So I don’t know what, 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 have to get my passport and go journey a little bit bit whereas I acquired the time and the prospect on the, let’s discuss 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 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 generally 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 will merely make a brand new regulation in opposition to foreigners and also you lose every thing, as occurred in Russia. And due to this fact, I believe capitalists from all around the world are nonetheless searching for 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 believe in some unspecified time in the future from summer season on or so, the greenback could have an even bigger downside and should decline fairly sharply. You misunderstood me, I mentioned the US is dearer than Switzerland, not the opposite means 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 important 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 totally different areas, what’s an space as we speak about avoiding the large Magazine Seven, are there pockets of the US or explicit nations elsewhere that you simply’re curious about? It could possibly be types like worth development, it could possibly be sectors, it could possibly be nations? Something that you simply’re say, “Okay, this seems rather a lot higher different than simply avoiding the large dudes.”
Felix:
I believe we’re nearly altering from development to worth. We’re within the late stage of this pull cycle from final yr’s low final fall. It’s the third up leg and that up leg when it ends will almost certainly result in a bear cycle. And as I defined, I believe the expansion shares because of the Magnificent Seven will undergo greater than the under-owned, than the under-owned shares that are worth shares and are cyclical shares, et cetera.
They’re cheaply priced. Lots of the cyclicals and worth shares should not costly. They’re cheaply priced, they’re under-owned and that’s what I wish to purchase within the subsequent decline. Proper now we now have one sector going in opposition to the market that’s power. Power will likely be a gorgeous 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 thing is rosy whereas the commodity markets and oil specifically is telling us it’s not so high quality, 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 number of months’ time, then I believe it’s a gorgeous place to purchase power producers, oil producers and gasoline producers in good jurisdictions, in protected jurisdictions.
So North America could be a superb place. Shares that produce in North America I believe would be the front-runners. They’re engaging. I additionally assume that the commodity associated shares, producers of copper and aluminum and people issues will likely be engaging shares within the subsequent cycle, however it’s too early to purchase. They may also 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 can be offered out and also you don’t have the promoting stress. Whereas these which can be over-owned, they’re declining greater than others.
You wish to purchase on the backside those which can be under-owned and don’t decline as a lot. So it’s important to research relative efficiency through the decline. And I believe you can see many engaging firms among the many industrials and the cyclicals commodity associated additionally, power that we’ll be verifying for the following up-cycle.
Meb:
The late Byron Wien all the time used to have his 10 surprises. If we sit down a yr from now and Felix says, “Okay, that is trying again on it, most likely the largest shock of 2024 or so in a different way, what do you assume goes to be the largest shock of the yr?” Something in that class of what you assume could be the large shock? Or we touched on it already.
Felix:
The massive shock will likely be that the yen would be the strongest forex.
Meb:
Oh man, I higher pay for my journey forward of time.
Felix:
Completely.
Meb:
I have to pay my bills. Let’s go forward and guide these.
Felix:
Completely. You need 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 won’t ease as a result of they’ve been simple all the way in which and due to this fact their forex has declined. The Japanese yen might be undervalued on a buying energy parity by 40% or so, and it has been used as the largest funding forex.
When it’s important to finance a venture, you all the time go to the currencies which can be the most cost effective to fund and the weakest, low cost and weak. Rates of interest had been low, the forex was weak, that was the best forex. What which means is that you’ve got an enormous [inaudible 00:32:41] place on the market from these financings.
And when the development adjustments, and it most likely has already modified, when that development adjustments, it goes very quick. I keep in mind the final time we had such a state of affairs was within the late 90s, 1998. I used to be in that commerce in 1998. In 97 the Asian disaster began and due to that the yen was very weak, a really weak forex, and the greenback was a really sturdy forex. And greenback yen was at 148 and three weeks later, in three weeks it went from 148 to 108.
Meb:
My goodness.
Felix:
It was a dramatic commerce and it was certainly one of my higher trades. I used loads of choices and I had certainly one of my excellent years in these in 1998. Yeah.
Meb:
You might 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 could possibly be a framework, it doesn’t should be a present opinion, however it could possibly be a present opinion, however what’s one thing that you’d say or imagine that a lot of the desk wouldn’t agree with? So one thing that’s non-consensus that you simply imagine that the majority of your skilled friends, not retail, however skilled friends could not agree with you on.
Felix:
5 years in the past I began to jot down about coming wars and all people was shaking their heads they usually laughed at me truly. And now we now have wars and I believe the wars will intensify, they may develop larger. We may have extra wars and we run the chance of a struggle 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 could possibly be a struggle the place we attempt to sabotage their electrical grid they usually ours and the web and issues like that.
And this can do loads of harm finally to our economies. And I believe this isn’t taken under 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 means.
Meb:
Is there something usually that form of on the time led you to that perception? Was it simply rhetoric from numerous teams? Was it long-term developments so far as societal form of macro points?
Felix:
It’s the fundamental thought of the [inaudible 00:35:40] entice. That is when you have got a state of affairs the place you have got a hegemon that controls every thing on the planet or in a area and abruptly new energy rises comes up and challenges the man, then you have got a battle. And that battle state of affairs we now have seen within the final 500 years, 16 instances. 12 instances, it led to direct struggle of the 2 rivals and 3 times it led to deputy wars and just one time it labored with out wars.
And that was the change from the Mom of Nice Britain to the [inaudible 00:36:20] of the US. And I believe we’re in such a state of affairs 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 all the time begins with straight conflicts after which it turns into finally militarily.
And I believe we’re transferring in direction of such a state of affairs. The state of affairs in Israel is harmful as a result of if Israel, after the Gaza operation tries to show in opposition to Hezbollah. Hezbollah is in Syria, and Syria and Russia have a army settlement. Syria is backed by Iran, as is Hezbollah. It might pull these guys in and it’ll pull within the US on the opposite 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 state of affairs. I’ve lately 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 turn out to be. So that’s one thing I’m very fearful about.
Meb:
As you look again in your profession, that is going to be a troublesome 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 nasty funding. That all the time… The nice investments you speak about, however the dangerous investments you always remember.
Meb:
They persist with you.
Felix:
My worst funding was when silver peaked at 50 and I noticed that peak. I offered out my gold and silver and I believed it 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 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 will decline to 12 backside within the 12, 10 space after which bounced again to 24. So I waited and about six months later I purchased 3 times as a lot between 10 and 12 after which it rallied to 24 the place I offered. 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 sensible. Sensible alone is nice sufficient.
Meb:
Yeah. Silver, we didn’t point out but right this moment, however I used to be making an attempt to tug up a chart to see the place we’re sitting right this moment as gold is pulling it up. Proper round 20, 24, 25. So.
Felix:
Yeah. Yeah.
Meb:
Not all time highs. So perhaps we acquired a little bit catch-up to be doing.
Felix:
I believe silver will likely be fascinating .and significantly from subsequent yr on, I believe silver on the way in which up, as soon as the dear 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:
Nicely, you heard it right here. Felix, if folks wish to observe your writing, your analysis, your consulting, the place do they go? What’s one of the 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 may write to information@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 this moment and pleased 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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