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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 this time’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 centered on the upcoming election in Taiwan.
Feedback or solutions? All for 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 to be like as 2023 winds down
- 3:30 – Why China just isn’t focused on 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 this time
- 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 largest shock in 2024?
- 33:36 – One thing Felix believes that of most his friends don’t
- 38:01 – Felix’s most memorable funding
- Be taught extra about Felix : FelixZulauf.com
Transcript:
Welcome Message:
Welcome to The Meb Faber Present the place the main target is on serving to you develop and protect your wealth. Be part of us as we talk about 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 is not going to talk about any of Cambria’s funds on this podcast. All opinions expressed by podcast contributors are solely their very own opinions and don’t replicate the opinion of Cambria Funding Administration or its associates. For extra info, go to cambriainvestments.com.
Meb:
Whats up, my associates. We obtained an episode at this time. I’ve been trying 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 this time’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 centered on the upcoming election in Taiwan. Please get pleasure from this episode with Felix Zulauf. Felix, welcome to point out.
Felix:
My pleasure. Thanks for having me, Meb.
Meb:
I’m so excited to have you ever. I’ve been wanting to speak to you for a very long time. The place do we discover you this morning? This night?
Felix:
Yeah, it’s early night in Switzerland, simply again from my place in Florida. Change to colder climate.
Meb:
Effectively, it’s at all times been a problem for me to regulate to California throughout the holidays, seeing a bunch of lights and bushes out on a pier within the ocean the place it’s 70 levels versus Colorado the place we’d nonetheless be going to highschool in a foot of snow. I’m not complaining as a result of it may be fairly good going browsing in December and January, however Switzerland seems like a magical time this time of 12 months.
Felix:
I’m undecided it’s. We have now no snow proper now down within the cities, so it could be good to have snow over Christmas time.
Meb:
So we’re going to bounce all around the globe this chat. Why don’t we get began together with your perch from over there in Switzerland, views of the worldwide economic system, what’s occurring? There’s been some macro forces, lots of people wringing their arms 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 at all times within the horizon. What’s the world appear like to you at this time as we wind down 2023?
Felix:
We have now three areas in very completely different standing. We have now China that’s form of weakish. It has misplaced its momentum. It has to digest the overhang from the actual property growth and the credit score growth and that may take not less than 10 years if not longer. So China is not going to be a locomotive to the world economic system for a lot of, a few years.
China is attempting to handle by 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. Respectable 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 selecting that up from sort of what they’ve been saying is the perception reasonably from simply indicators you’re ? What makes you come to form of that perception as you look to the far East?
Felix:
I’ve mentioned that for a few years. Once 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 quite a bit to digest and sadly they don’t have a inhabitants that’s rising.
It’s truly shrinking barely, however it’ll speed up the shrinking over time. So there is no such thing as a approach they will develop out of the issue. That’s unimaginable. 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 lots of the debt.
However they’ll solely achieve this as soon as the western world is on the level to take action additionally, as a result of we’ve 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 significant 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.
Not too long ago, towards 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 forex. They didn’t need their forex to go down and break down badly. They wish to hold all the things in stability till 2024 once we in all probability have a recession within the US and central financial institution will start to chop charges and the pump liquidity into the system. Then they will do it additionally, however in any other case it could harm them.
Then we’ve Europe. Europe is the massive 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 upon China for exports and US for exports and US on protection and they’re going to come out very weak.
The economic system is struggling notably in these areas the place they attempt to go inexperienced and the off gasoline led power and nuclear power like Germany that’s very weak. They’re destroying the German economic system truly. Different elements are doing somewhat bit higher. Spain is doing very nicely. Italy has now outperformed Germany I believe for nearly 4 years.
So internet I might say Europe is form of stagnating borderline to recession. And if the US goes into recession, we’ll in all probability additionally go into recession and the recession will deepen considerably. The US is the odd man. It has been the strongest economic system, supplied some huge cash to the folks to spend. And that fiscal assist helped in fact. And I believe the tightening over the past 12 months 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 could have such a pronounced consensus and all of the specialists and forecasts agree, one thing else goes to occur. So I believe the economic system will first be somewhat 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 wouldn’t have an enormous stock overhang or something of that kind. That would imply that company earnings let’s say go down 10%. It might go down extra however let’s say delicate 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 folks bear in mind once they enter the market nowadays. And really the market has some technical points which can be very harmful. And I’m referring to the large focus of shares. Focus of shares that carry out very nicely and are the beneficiaries of weak inflows of cash on the 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 take into account that if you put money into a passive approach and also you index or if you put money into an lively approach and also you do closet indexing as most guys are doing, then you find yourself with in all probability 80% of the fairness invested worldwide is benchmarked. And that implies that if you happen to put money into a world index, nearly two thirds of the cash flows into the US market and out of that cash one third flows into seven shares.
So you could have a focus like by no means earlier than on the earth. And that was very good on the way in which up. I believe it’ll exaggerate the transfer on the way in which down. So when a correction comes, when managers are hit with redemptions, once they have to boost money, et cetera, they need to promote what they personal an excessive amount of of and people are the heavyweights of the Magnificent Seven as a result of if you happen to 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 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 motive turns down, then you definately get the transfer down that will get exaggerated and has nothing to do with the actual economic system. Individuals don’t perceive that because the transfer up right here doesn’t have a lot to do with the actual economic system.
Meb:
Man, Felix, you touched on quite a bit there, so we’re going to dive into a couple of issues. The primary, I used to be laughing as you have been speaking about Italy as a result of one among my favourite issues to do after I go on TV is I ask my son, he’s six. I say, “You bought to offer 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 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 stay TV I can work in Mama Mia.” However Italian shares have been having an incredible 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 assume anybody perceive what I used to be speaking about, however I had an viewers of 1 so I lastly made it.
Okay, so there’s a handful of issues that I might like to get into. We’re going to get again to the Magnificent Seven in a minute, however one of many issues I’ve seen you write about as we’re speaking about sort of geopolitics, everyone seems to be so centered within the macro world at all times on the massive occasions, what’s occurring in Ukraine, what’s occurring in Israel, elections, we obtained one arising within the US subsequent 12 months, Argentina. However the one which I’ve seen you write quite a bit about is the significance of the Taiwanese election. Perhaps speak somewhat bit about how that could be an necessary position 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 relating to Taiwan, there wouldn’t be an issue and we wouldn’t speak about it and Xi wouldn’t have made the error of claiming we wish to combine Taiwan throughout the subsequent 5 years.
That was an enormous mistake. It mustn’t have put a time restrict on that. In Taiwan you could have individuals who favor getting nearer with China and you’ve got others which can be towards it. And on January thirteenth there 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 determine 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 have now to attend for the end result, however you even have to grasp that about 10% of the Taiwanese workforce already lively 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 trade of know-how goes each methods they usually commerce and they’re pleasant, in fact the Chinese language are often aggressive with their navy maneuvers et cetera. However I don’t see a battle arising there.
I believe that may be dangerous. I believe the Taiwanese working in China are telling their folks again house they’re handled very nicely, they make a great residing, all the things is ok. And over time, if no person 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 in order that they at all times gave China a 3 to 4 months lead over others to maintain them blissful.
Meb:
Effectively, it’s fascinating, we have been speaking about this the opposite day with any person the place everyone seems to be so excited and sizzling bothered about lots of the American massive tech. And notably if you’re speaking about investments in shares, American semiconductor corporations.
And if you happen to look in Taiwan and elsewhere, South Korea particularly, there occurs to be lots of semiconductor corporations, additionally ones that commerce at a a lot bigger valuation low cost than among the ones in the US do, together with a couple of which have been two, three baggers this 12 months 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 whole 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 possibly 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 all the things is settled out and we’ve a brand new world order that appears to be steady. However we undergo this order and the volatility in geopolitics for one more 5 to eight years or so.
Meb:
I’m wondering 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 form of idea the place it simply dragged the entire market cap weight up. Are there every other durations you assume that this type of feels somewhat like or related so far as we have a look at the playbook on what could transpire?
Felix:
The NIFTY 50s have been one, the TMT shares in 2000 have been one other one, after which the conglomerates within the late 60s have been one other one. The conglomerates like Litton Industries, Teledyne and all these conglomerates have been then in favor they usually obtained a really excessive a number of due to that and the cash was flowing into them and ultimately many of the shares with a couple of exceptions declined badly thereafter and a few even disappeared.
Meb:
One of many massive matters for the previous couple years, definitely right here but in addition definitely in different international locations 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 finished with. How do you form of have a look at this twin matter, and you’ll take this the place you’re feeling applicable, of each inflation and bonds? I’ve seen you speak quite a bit about optimism and the bond fastened revenue world is fairly excessive proper now. What’s your ideas on that basic space of fastened revenue and inflation?
Felix:
Effectively, to begin with, the buyer worth index has by no means gone down. It has at all times gone up. And inflation is the speed of change of the buyer worth index. They usually consistently change the composition of the buyer 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 folks wouldn’t drive automobiles and wouldn’t eat. It’s nonsense, in fact.
And not too long ago they took out healthcare insurance coverage premiums and changed it with healthcare insurance coverage firm’s earnings as a result of the one went down and the opposite went up. So I believe there are lots of foolish video games being performed and if you happen to take the basket of 1990, you might be at 9 or 10 p.c 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 12 months.
This 12 months 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 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 accordance 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 in regards to 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’re going to make it most value 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 in all probability 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 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 obtained to be worse as a result of if you go the second time over 10%, I don’t consider that the 10-year treasuries will keep at 5. After which if you happen to go to eight or one thing like that, then in fact the query is can our system deal with that? And I believe it can’t. We may have a disaster. We may have in all probability probably the most extreme recession disaster within the later 20s. And that’s what we in all probability 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’t elevate taxes dramatically in case you are in a pleasing circumstance, if all the things 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 need to sacrifice one thing and have to do it for the good thing about our nation. So that is what I see forward.
Meb:
You allude to commodities, which is a subject that I believe is difficult for lots of traders. Effectively, there’s one specifically that’s nudging at all-time highs proper now and that’s in fact the shiny steel that generates in all probability extra diversified opinions than nearly something on the market aside from my Aussie and Canadian associates, they’re on board.
However you’ve talked about gold previously. Most People, I really feel like that hearken to the present, don’t personal a lot of their portfolios. My Chinese language and Indian associates, it’s a unique story. What are you occupied with the shiny steel, do you assume it’s fascinating, not fascinating, is hitting all-time highs right here?
Felix:
Gold is cash and also you see that bodily gold is transferring from the West to the worldwide South, China, Russia, different BRICS nations are shopping for it and the West is promoting it. And I believe they’ve began historical past as a result of if you go right into a disaster, gold is cash if you want it as a result of your individual debased fiat cash, possibly no person desires at the moment, however gold is at all times accepted. And gold is unstable, goes up and down.
It displays the debasement of the fiat currencies. Gold they are saying is at all times value about an costly swimsuit. So there are folks shopping for fits for 2000, 3000 {dollars} and that’s in all probability the worth vary. Gold is on an eight-year cycle. 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 in all probability be the next worth than now, we’ll see an acceleration on the upside for about 4 years. So I’m fairly constructive on gold. I’ve not too long ago seen a survey amongst American traders, 71% of these polled confirmed they owned between zero and one p.c of their property. So gold just isn’t broadly owned and I believe it will likely be extra broadly 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 truly attempting to do it the place they have been promoting gold bars at Costco they usually instantly offered out in fact. So I’m going to look ahead into the following couple of years when Costco turns into the most important distributor of gold bars on the earth.
I discovered an incredible truth 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 folks 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 somewhat bit whereas I obtained the time and the possibility on the, let’s speak in regards to the greenback and world currencies. Is it lots of the Quants will say that buying energy parity US greenback is dear. Is that your view? What do you consider 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, in all probability along with when the inventory market tops out. And from then I count on a restoration. I have no idea how lengthy it’ll will final, however in a non-safe world, if 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 all the things, as occurred in Russia. And subsequently, I believe capitalists from everywhere in 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 entire 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 most important pond tightens greater than all of the others little ponds. And once they start to ease subsequent 12 months, then I believe in some unspecified time in the future from summer time on or so, the greenback could have an even bigger drawback and will decline fairly sharply. You misunderstood me, I mentioned the US is dearer than Switzerland, not the opposite approach round.
Meb:
Yeah. Yeah, US costly, so we obtained to journey.
Felix:
Yeah.
Meb:
Proper. Proper. Proper. Proper.
Felix:
Yeah. Yeah. That’s proper. Yeah, you need to journey. You must 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 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 massive Magazine Seven, are there pockets of the US or explicit international locations elsewhere that you just’re focused on? It might be types like worth development, it might be sectors, it might be international locations? Something that you just’re say, “Okay, this seems to be quite a bit 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 12 months’s low final fall. It’s the third up leg and that up leg when it ends will most certainly result in a bear cycle. And as I defined, I believe the expansion shares as a result of 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. Most of the cyclicals and worth shares aren’t costly. They’re cheaply priced, they’re under-owned and that’s what I wish to purchase within the subsequent decline. Proper now we’ve one sector going towards the market that’s power. Vitality will likely 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 all the things is rosy whereas the commodity markets and oil specifically is telling us it’s not so tremendous, 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 gasoline producers in good jurisdictions, in protected jurisdictions.
So North America can be a great place. Shares that produce in North America I believe would be the front-runners. They’re enticing. I additionally assume that the commodity associated shares, producers of copper and aluminum and people issues will likely be enticing shares within the subsequent cycle, but it surely’s too early to purchase. They can even go down with the market however to not the identical diploma as the expansion shares.
And normally when you could have a change in management, it’s normally throughout a down cycle, throughout a downdraft the place these sectors that decline lower than others, these are those which can be offered out and also you wouldn’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 you need to examine relative efficiency throughout the decline. And I believe one can find many enticing corporations 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 at all times used to have his 10 surprises. If we sit down a 12 months from now and Felix says, “Okay, that is trying again on it, in all probability the most important shock of 2024 or so otherwise, what do you assume goes to be the most important shock of the 12 months?” Something in that class of what you assume could be the massive 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 e-book these.
Felix:
Completely. You must 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 is not going to ease as a result of they’ve been simple all the way in which and subsequently their forex has declined. The Japanese yen might be undervalued on a buying energy parity by 40% or so, and it has been used as the most important funding forex.
When you need to finance a venture, you at all times go to the currencies which can be the most affordable to fund and the weakest, low cost and weak. Rates of interest have been low, the forex was weak, that was the best forex. 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 in all probability has already modified, when that pattern adjustments, it goes very quick. I keep in mind the final time we had such a scenario was within the late 90s, 1998. I used to be in that commerce in 1998. In 97 the Asian disaster began and due to that the yen was very weak, a really weak forex, and the greenback was a really robust forex. And greenback yen was at 148 and three weeks later, in three weeks it went from 148 to 108.
Meb:
My goodness.
Felix:
It was a dramatic commerce and it was one among my higher trades. I used lots of choices and I had one among my superb years in these in 1998. Yeah.
Meb:
You will 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 might be a framework, it doesn’t need to be a present opinion, but it surely might be a present opinion, however what’s one thing that you’d say or consider that many of the desk wouldn’t agree with? So one thing that’s non-consensus that you just consider 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’ll develop larger. We may have extra wars and we run the danger of a battle the place the massive guys get entangled. I wouldn’t say that Chinese language tanks will roll by the US or so, however I believe it might be a battle the place we attempt to sabotage their electrical grid they usually ours and the web and issues like that.
And it will do lots of injury ultimately to our economies. And I believe this isn’t taken under 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 possibly can throw out of the window. It doesn’t work that approach.
Meb:
Is there something typically that sort of on the time led you to that perception? Was it simply rhetoric from numerous teams? Was it long-term tendencies so far as societal sort of macro points?
Felix:
It’s the essential concept of the [inaudible 00:35:40] lure. That is when you could have a scenario the place you could have a hegemon that controls all the things on the earth or in a area and rapidly new energy rises comes up and challenges the man, then you could have a battle. And that battle scenario we’ve seen within the final 500 years, 16 instances. 12 instances, it led to direct battle 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 at all times begins with straight conflicts after which it turns into ultimately militarily.
And I believe we’re transferring 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 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’d 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 at all times first speak to the US earlier than they begin one thing as a result of the US is realizing how harmful the [inaudible 00:37:45] is and will turn into. So that’s one thing I’m very nervous about.
Meb:
As you look again in your profession, that is going to be a tricky one, you talked about the yen already, what has been your most memorable funding? It might be good, it might be dangerous, it might be in between, however simply the one which seared into your mind.
Felix:
Probably the most memorable funding was a nasty funding. That at all times… The nice 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 could 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 could decline to 12 backside within the 12, 10 space after which bounced again to 24. So I waited and about six months later I purchased 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. Sensible alone is nice sufficient.
Meb:
Yeah. Silver, we didn’t point out but at this time, however I used to be attempting to drag up a chart to see the place we’re sitting at this time as gold is pulling it up. Proper round 20, 24, 25. So.
Felix:
Yeah. Yeah.
Meb:
Not all time highs. So possibly we obtained somewhat catch-up to be doing.
Felix:
I believe silver will likely be fascinating .and notably from subsequent 12 months on, I believe silver on the way in which up, as soon as the dear steel cycle begins to achieve traction, then I believe silver will outperform gold on the way in which 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:
Effectively, you heard it right here. Felix, if folks wish to comply with your writing, your analysis, your consulting, the place do they go? What’s the very best place to seek out extra details about you and what you’re as much as?
Felix:
You go to www.felixzulauf.com and you’ll write to data@felixzulauf.com and there you discover us.
Meb:
Felix, it’s been a blessing and a lot enjoyable. Thanks a lot for becoming a member of us at this time and blissful holidays to you and all of yours.
Felix:
Completely satisfied holidays to you too. And thanks very a lot for having me. It’s been an honor. Thanks, Meb
Meb:
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