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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 might 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? Curious about sponsoring an episode? E mail us Suggestions@TheMebFaberShow.com
Hyperlinks from the Episode:
- 1:23 – Welcome Felix to the present
- 2:14 – What the world seems like as 2023 winds down
- 3:30 – Why China will not be eager 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 surroundings right this moment
- 17:38 – Ideas on fastened revenue and inflation
- 22:17 – Gold
- 25:20 – The US greenback and different currencies
- 31:21 – What is going to greatest shock in 2024?
- 33:36 – One thing Felix believes that of most his friends don’t
- 38:01 – Felix’s most memorable funding
- Study extra about Felix : FelixZulauf.com
Transcript:
Welcome Message:
Welcome to The Meb Faber Present the place the main focus is on serving to you develop and protect your wealth. Be part of us as we focus on the craft of investing and uncover new and worthwhile concepts all that will help you develop wealthier and wiser. Higher investing begins right here.
Disclaimer:
Meb Faber is the co-founder and chief funding officer at Cambria Funding Administration. Because of trade laws, he is not going to 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 replicate the opinion of Cambria Funding Administration or its associates. For extra data, go to cambriainvestments.com.
Meb:
Hey, my associates. We obtained an episode right this moment. 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 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 might 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:
Nicely, it’s all the time been a problem for me to regulate to California throughout the holidays, seeing a bunch of lights and timber out on a pier within the ocean the place it’s 70 levels versus Colorado the place we’d nonetheless be going to 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 yr.
Felix:
I’m undecided it’s. Now we have no snow proper now down within the cities, so it could be good to have snow over Christmas time.
Meb:
So we’re going to bounce all world wide 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 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 all the time within the horizon. What’s the world appear like to you right this moment as we wind down 2023?
Felix:
Now we have three areas in very totally different standing. Now we have China that’s kind of weakish. It has misplaced its momentum. It has to digest the overhang from the true property increase and the credit score increase and that 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 choosing that up from type of what they’ve been saying is the perception reasonably from simply indicators you’re ? What makes you come to kind of that perception as you look to the far East?
Felix:
I’ve stated that for a few years. Once I noticed the overhang from development increase, actual property increase, the credit score increase, as soon as that’s over, the overhang is large. And give it some thought, the US has what? 140 million items of house in the entire us. The overhang of empty houses in China is about 100 million. In order that’s so much to digest and sadly they don’t have a inhabitants that’s rising.
It’s truly shrinking barely, however it can speed up the shrinking over time. So there is no such thing as a manner they’ll develop out of the issue. That’s not possible. Subsequently, they should restructure, they should take the write-offs and finally they should recapitalize the native governments, that are the massive gamers in that they usually should recapitalize the banking trade they usually should monetize plenty of the debt.
However they’ll solely accomplish that as soon as the western world is on the level to take action additionally, as a result of we’ve our issues, structural issues as effectively. And I believe that may solely come within the second half of the 20s. However we’ll run into a serious disaster in a couple of years’ time, fiscal disaster, et cetera, after which we’ll attempt to stimulate out of it. And as soon as the western world stimulates, the Chinese language will accomplish that.
Not too long ago, 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 forex. They didn’t need their forex to go down and break down badly. They need to hold every part in stability till 2024 after we in all probability have a recession within the US and central financial institution will start to chop charges and the pump liquidity into the system. Then they’ll do it additionally, however in any other case it could harm them.
Then we’ve Europe. Europe is the massive loser on this complete 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 robust, it’s an enormous market, however all of them rely on China for exports and US for exports and US on protection and they’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 vitality and nuclear vitality like Germany that’s very weak. They’re destroying the German economic system truly. Different elements are doing just a little bit higher. Spain is doing very effectively. Italy has now outperformed Germany I believe for nearly 4 years.
So internet I might say Europe is kind 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 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 finally be felt throughout 2024.
However the consensus of a smooth touchdown may be very pronounced. And what I’ve discovered in my profession is when you may have such a pronounced consensus and all of the consultants and forecasts agree, one thing else goes to occur. So I believe the economic system will first be just a little 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 would not 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 gentle 10%. Normally in a recession they go down 25%. And you’re taking a backside, a bear market backside, a a number of of 16, you arrive at about 3,500.
That’s not what individuals take note of after they enter the market lately. And truly 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 effectively and are the beneficiaries of weak inflows of cash on the best way up can pull the market index up dramatically as executed this yr.
The 493 shares didn’t in addition to the Magnificent Seven, however remember that while you spend money on a passive manner and also you index or while you spend money on an lively manner and also you do closet indexing as most guys are doing, then you find yourself with in all probability 80% of the fairness invested worldwide is benchmarked. And that signifies that in the event you spend money on a world index, nearly two thirds of the cash flows into the US market and out of that cash one third flows into seven shares.
So you may have a focus like by no means earlier than on this planet. And that was very good on the best way up. I believe it can exaggerate the transfer on the best way down. So when a correction comes, when managers are hit with redemptions, after they have to lift 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 in the event you needed to outperform, you needed to obese these Magnificent Seven, in any other case you’re executed.
And I not too long ago learn a report that stated the big hedge funds within the US have 70% of their equities in 10 positions. I’m undecided whether or not that’s true or not, however I might think about it’s. And if that’s true and the marketplace for no matter purpose turns down, then you definately get the transfer down that will get exaggerated and has nothing to do with the true economic system. Folks don’t perceive that because the transfer up right here doesn’t have a lot to do with the true economic system.
Meb:
Man, Felix, you touched on so much there, so we’re going to dive into a couple of issues. The primary, I used to be laughing as you have been speaking about Italy as a result of 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 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 subject.”
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 manner on dwell TV I can work in Mama Mia.” However Italian shares have been having an ideal yr and so I believed 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 type of geopolitics, everyone seems to be so centered within the macro world all the time on the massive occasions, what’s occurring in Ukraine, what’s occurring in Israel, elections, we obtained one developing within the US subsequent yr, Argentina. However the one which I’ve seen you write so much about is the significance of the Taiwanese election. Possibly speak just a little bit about how which may be an vital function 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. 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 discuss it and Xi wouldn’t have made the error of claiming we need 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 may have 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 fully 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. Now we have 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 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 often aggressive with their army maneuvers et cetera. However I don’t see a warfare developing there.
I believe that will be dangerous. I believe the Taiwanese working in China are telling their individuals again house they’re handled very effectively, they make dwelling, 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, every time they made a brand new innovation or new chip or so that they all the time gave China a 3 to 4 months lead over others to maintain them completely satisfied.
Meb:
Nicely, it’s attention-grabbing, we have been speaking about this the opposite day with any individual the place everyone seems to be so excited and scorching bothered about plenty of the American giant tech. And notably while you’re speaking about investments in shares, American semiconductor firms.
And in the event you look in Taiwan and elsewhere, South Korea particularly, there occurs to be plenty of semiconductor firms, 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 all the time attention-grabbing 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, nevertheless 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 should have possibly one other another 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 might 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 an additional 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 browse a few of these books about among the shares you simply needed to personal. You couldn’t not personal a few of these firms in many years previous due to the identical kind of idea the place it simply dragged the entire market cap weight up. Are there another intervals you suppose that this type of feels just a little like or related so far as we take a look at the playbook on what might 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 finally a lot of the shares with a couple of exceptions declined badly thereafter and a few even disappeared.
Meb:
One of many large matters for the previous couple years, actually right here but in addition actually in different nations 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 completed with. How do you kind of take a look at this twin subject, and you may take this the place you’re feeling applicable, of each inflation and bonds? I’ve seen you speak so much 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 all the time 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 dwelling actually is. Within the 70s, they took vitality out and meals out as a result of they stated, “We can not management it,” as if individuals wouldn’t drive vehicles and wouldn’t eat. It’s nonsense, after all.
And not too long ago they took out healthcare insurance coverage premiums and changed it with healthcare insurance coverage firm’s earnings as a result of the one went down and the opposite went up. So I believe there are plenty of foolish video games being performed and in the event you take the basket of 1990, you’re at 9 or 10 p.c inflation these days within the US. And I come to the US for 50 years and in all these 50 years eating places have all the time been cheaper than in Switzerland apart from this 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 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 all the way down to 2% or one thing like that subsequent yr, however the cycle behaves very a lot in accordance with the cycle within the late 60s and 70s and 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 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 lately will make commodities rise very, very dramatically for my part.
So you should have in all probability an oil worth in 26 of 150, 200 {dollars}. That provides you a CPI of greater than 10%. So I believe we could 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 while you go the second time over 10%, I don’t imagine that the 10-year treasuries will keep at 5. After which in the event 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 not. We could have a disaster. We could have in all probability one of the crucial 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 not minimize entitlements and you can’t elevate taxes dramatically in case you are in a nice 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 should sacrifice one thing and have to do it for the advantage of 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. Nicely, there’s one specifically that’s nudging at all-time highs proper now and that’s after all the shiny steel that generates in all probability extra various opinions than nearly something on the market apart from my Aussie and Canadian associates, they’re on board.
However you’ve talked about gold prior to now. 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 suppose it’s attention-grabbing, not attention-grabbing, 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 while you go right into a disaster, gold is cash while you want it as a result of your personal debased fiat cash, possibly no person needs at the moment, however gold is all the time accepted. And gold is risky, 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 individuals shopping for fits for 2000, 3000 {dollars} and that’s in all probability the worth vary. Gold is on an eight-year cycle. While 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 an enormous change in financial coverage.
So I believe from that theoretical cycle low, which can in all probability be a better worth than now, we’ll see an acceleration on the upside for about 4 years. So I’m fairly constructive on gold. I’ve not too long ago seen a survey amongst American traders, 71% of these polled confirmed they owned between zero and one p.c of their property. So gold will not be broadly owned and I believe it will likely be extra broadly owned as costs go up. Most individuals purchase essentially the most on the high and never on the backside.
Meb:
I laughingly joined Costco as a result of I used to be attempting, I don’t know if it was a promotion, they’re attempting to get press or they’re truly attempting to do it the place they have been promoting gold bars at Costco they usually instantly bought out after all. So I’m going to look ahead into the subsequent couple of years when Costco turns into the most important distributor of gold bars on this planet.
I discovered an ideal 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 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 have to get my passport and go journey just a little bit whereas I obtained the time and the possibility on the, let’s speak in regards to the greenback and world currencies. Is it plenty 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 should always keep away from?
Felix:
I believe the greenback has topped final September I believe it was, and is now in its second medium time period decline. And that medium time period decline, I count on to finish typically within the first quarter, in all probability along with when the inventory market tops out. And from then I count on a restoration. I have no idea how lengthy it’ll will final, however in a non-safe world, while you 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 not belief these jurisdictions. They will 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 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 most important pond tightens greater than all of the others little ponds. And after they start to ease subsequent yr, then I believe in some unspecified time in the future from summer season on or so, the greenback might have an even bigger drawback and should decline fairly sharply. You misunderstood me, I stated the US is costlier than Switzerland, not the opposite manner round.
Meb:
Yeah. Yeah, US costly, so we obtained to journey.
Felix:
Yeah.
Meb:
Proper. Proper. Proper. Proper.
Felix:
Yeah. Yeah. That’s proper. Yeah, it’s important to journey. It’s important to journey.
Meb:
My listeners are 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 discuss all these totally different areas, what’s an space as we discuss avoiding the massive Magazine Seven, are there pockets of the US or specific nations elsewhere that you just’re eager about? It might be kinds like worth development, it might be sectors, it might be nations? Something that you just’re say, “Okay, this seems so much 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 most probably 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. Most of the cyclicals and worth shares usually are not costly. They’re cheaply priced, they’re under-owned and that’s what I need to purchase within the subsequent decline. Proper now we’ve one sector going towards the market that’s vitality. Power will likely be a beautiful sector going ahead, however it’s now correcting as a result of the worth of oil is discounting a worldwide recession and it’s coming down due to that.
It’s truly telling us a really totally different story from the inventory markets. The inventory markets are telling us every part is rosy whereas the commodity markets and oil specifically is telling us it’s not so nice, it’s not so good on the market. So, I believe when oil goes all the way down to let’s say 60 or under 60 in a couple of months’ time, then I believe it’s a beautiful place to purchase vitality producers, oil producers and fuel producers in good jurisdictions, in protected jurisdictions.
So North America can be place. Shares that produce in North America I believe would be the front-runners. They’re engaging. I additionally suppose that the commodity associated shares, producers of copper and aluminum and people issues will likely be engaging shares within the subsequent cycle, nevertheless it’s too early to purchase. They will even go down with the market however to not the identical diploma as the expansion shares.
And normally when you may 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 might be bought out and also you would not have the promoting stress. 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 it’s important to research relative efficiency throughout the decline. And I believe you can see many engaging firms among the many industrials and the cyclicals commodity associated additionally, vitality that we’ll be verifying for the subsequent up-cycle.
Meb:
The late Byron Wien all the time used to have his 10 surprises. If we sit down a yr from now and Felix says, “Okay, that is wanting again on it, in all probability the most important shock of 2024 or so otherwise, what do you suppose goes to be the most important shock of the yr?” Something in that class of what you suppose is perhaps 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. It’s important to perceive that the Japanese didn’t tighten coverage they usually have been the one ones that didn’t tighten and all of the others have tightened. When all of the others start to ease, the Japanese is not going to ease as a result of they’ve been simple all the best way 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 most important funding forex.
When it’s important to finance a undertaking, you all the time go to the currencies which might 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 perfect forex. What which means 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 certainly one of my higher trades. I used plenty of choices and I had certainly one of my excellent years in these in 1998. Yeah.
Meb:
You might have fairly a couple of non-consensus views. I do a Twitter thread the place I discuss 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 should be a present opinion, nevertheless it might 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 the majority of your skilled friends, not retail, however skilled friends might 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 could have extra wars and we run the danger of a warfare 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 warfare the place we attempt to sabotage their electrical grid they usually ours and the web and issues like that.
And this can do plenty of injury finally to our economies. And I believe this isn’t taken into consideration once 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 may throw out of the window. It doesn’t work that manner.
Meb:
Is there something usually that type of on the time led you to that perception? Was it simply rhetoric from varied teams? Was it long-term tendencies so far as societal type of macro points?
Felix:
It’s the fundamental thought of the [inaudible 00:35:40] entice. That is when you may have a scenario the place you may have 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 may have a battle. And that battle scenario we’ve seen within the final 500 years, 16 instances. 12 instances, it led to direct warfare of the 2 rivals and thrice it led to deputy wars and just one time it labored with out wars.
And that was the change from the Mom of Nice Britain to the [inaudible 00:36:20] of the US. And I believe we’re in such a scenario once more. And when Trump began to attempt to push China on commerce, it was clear on the [inaudible 00:36:35] the battle can be inescapable, the battle would come. It all the time begins with straight conflicts after which it turns into finally militarily.
And I believe we’re transferring in direction of such a scenario. The scenario in Israel is harmful as a result of if Israel, after the Gaza operation tries to show towards Hezbollah. Hezbollah is in Syria, and Syria and Russia have a army settlement. Syria is backed by Iran, as is Hezbollah. It might pull these guys in and it’ll pull within the US on the opposite facet.
And the Chinese language are the present energy dealer within the Center East. It’s not the US anymore. And naturally they might again the BRICS facet. It’s a really harmful scenario. I’ve not too long ago heard that it’s the primary time that the Israeli commando should all the time 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 change into. So that’s one thing I’m very frightened about.
Meb:
As you look again in your profession, that is going to be a tricky one, you talked about the yen already, what has been your most memorable funding? It might be good, it might be dangerous, it might be in between, however simply the one which seared into your mind.
Felix:
Essentially the most memorable funding was a foul funding. That all the time… The great investments you discuss, 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 bought out my gold and silver and I believed it could go all the way down to 36 after which bounce to 45 or so. So at 36 I purchased silver, and as I purchased, it simply began to go down, down, down, down, down. And I bought out that 18. I misplaced 50% on that commerce and I used to be fully confused. I used to be 30 years outdated at the moment and it harm. I needed to flip the display screen off for a couple of days. I couldn’t watch it anymore.
After which I went again to the drafting board and did my homework and I figured it 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 bought. So I got here out properly on the finish, however oh, that was horrible and it harm badly and I always remember that and it taught me the lesson by no means attempt to be tremendous good. Good alone is nice sufficient.
Meb:
Yeah. Silver, we didn’t point out but right this moment, however I used to be attempting to drag 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 possibly we obtained just a little catch-up to be doing.
Felix:
I believe silver will likely be attention-grabbing .and notably from subsequent yr on, I believe silver on the best way up, as soon as the valuable steel cycle begins to achieve 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 nonetheless, 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 seek 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 completely satisfied holidays to you and all of yours.
Felix:
Blissful holidays to you too. And thanks very a lot for having me. It’s been an honor. Thanks, Meb
Meb:
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