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 in the present day’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 options? Inquisitive 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 isn’t curious 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 setting in the present day
• 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
• Study 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 a 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. As a consequence 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 mirror the opinion of Cambria Funding Administration or its associates. For extra info, go to cambriainvestments.com.

Meb:

Hi there, my pals. We acquired an episode in the present day. I’ve been trying ahead to this dialog for an extended, very long time. Excited to share our chat with well-known macro professional Felix Zulauf, founding father of Zulauf Consulting. He was beforehand the worldwide strategist for UBS and later ran his personal asset administration agency.

In in the present day’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 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 at all times been a problem for me to regulate to California through the holidays, seeing a bunch of lights and timber out on a pier within the ocean the place it’s 70 levels versus Colorado the place we’d nonetheless be going to high school in a foot of snow. I’m not complaining as a result of it may be fairly good going browsing in December and January, however Switzerland feels like a magical time this time of yr.

Felix:

I’m undecided it’s. We now have no snow proper now down within the cities, so it might be good to have snow over Christmas time.

Meb:

So we’re going to bounce all all over the world this chat. Why don’t we get began along with your perch from over there in Switzerland, views of the worldwide financial system, what’s occurring? There’s been some macro forces, lots of people wringing their palms this yr about potential recessions. And I feel 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 seem like to you in the present day as we wind down 2023?

Felix:

We now have three areas in very completely different standing. We now have 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 may take not less than 10 years if not longer. So China is not going to be a locomotive to the world financial system for a lot of, a few years.

China is making an attempt to handle by means of 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. First rate development, three, 4 p.c is nice sufficient for them and in actuality, three or 4 p.c what they publish might be one to 2 p.c, no more than that.

Meb:

And are you selecting that up from sort of what they’ve been saying is the perception moderately from simply indicators you’re ? What makes you come to type of that perception as you look to the far East?

Felix:

I’ve stated that for a few years. After I noticed the overhang from building 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 models of residence 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 really shrinking barely, however it’ll speed up the shrinking over time. So there isn’t a method they’ll develop out of the issue. That’s inconceivable. Due to this fact, they must restructure, they must take the write-offs and ultimately they must recapitalize the native governments, that are the massive gamers in that and so they must recapitalize the banking trade and so they must monetize lots of the debt.

However they may solely accomplish that as soon as the western world is on the level to take action additionally, as a result of we’ve got our issues, structural issues as effectively. And I feel that may solely come within the second half of the 20s. However we are going to run into a serious disaster in a number of years’ time, fiscal disaster, et cetera, after which we are going to attempt to stimulate out of it. And as soon as the western world stimulates, the Chinese language will accomplish that.

Not too long ago, in opposition to the expectation of many 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 preserve the whole lot 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’ll do it additionally, however in any other case it might harm them.

Then we’ve got 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 and so they haven’t any saying on this planet actually. Economically they’ve been sturdy, it’s an enormous 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 gas led power and nuclear power like Germany that’s very weak. They’re destroying the German financial system really. Different elements are doing a bit of bit higher. Spain is doing very effectively. Italy has now outperformed Germany I feel for nearly 4 years.

So web I might say Europe is type of stagnating borderline to recession. And if the US goes into recession, we are going to in all probability 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 individuals to spend. And that fiscal help helped after all. And I feel the tightening during the last yr and a half or so will ultimately be felt throughout 2024.

However the consensus of a mushy touchdown could be very pronounced. And what I’ve realized in my profession is when you’ve gotten such a pronounced consensus and all of the consultants and forecasts agree, one thing else goes to occur. So I feel the financial system will first be a bit of bit stronger than anticipated after which weaker than anticipated and fall into recession. And that ought to harm the company earnings.

Let’s say it’s going to be a light recession as a result of we do not need 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’re taking a backside, a bear market backside, a a number of of 16, you arrive at about 3,500.

That’s not what individuals bear in mind once they enter the market as of late. And truly the market has some technical points which are 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 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 if you spend money on a passive method and also you index or if you spend money on an energetic method 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 should 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’ve gotten a focus like by no means earlier than on this planet. And that was very good on the way in which up. I feel 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 lift money, et cetera, they must promote what they personal an excessive amount of of and people are the heavyweights of the Magnificent Seven as a result of should you needed to outperform, you needed to chubby these Magnificent Seven, in any other case you’re performed.

And I not too long ago learn a report that stated 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 cause turns down, then you definately get the transfer down that will get exaggerated and has nothing to do with the actual financial system. Individuals 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 have been speaking about Italy as a result of one in every of my favourite issues to do once I go on TV is I ask my son, he’s six. I say, “You bought to provide me a phrase to work into the interview as a problem and so that you simply’ll watch it and make it enjoyable for me, as a result of in any other case I get bored speaking about among the stuff that’s the every day matter.”

And I assumed he lastly defeated me this time as a result of in years previous it was phrases like “Ninja” or “Blah blah blah” or a meme and this time it was “Mama Mia.” And I’m like, “There’s no method on stay TV I can work in Mama Mia.” However Italian shares have been having a fantastic yr and so I assumed I couldn’t do it however I used to be capable of squeeze it in. I don’t suppose anybody perceive what I used to be speaking about, however I had an viewers of 1 so I lastly made it.

Okay, so there’s a handful of issues that I might like to get into. We’re going to get again to the Magnificent Seven in a minute, however one of many issues I’ve seen you write about as we’re speaking about sort of geopolitics, everyone seems to be so centered within the macro world at all times on the massive occasions, what’s occurring in Ukraine, what’s occurring in Israel, elections, we acquired one developing 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. Possibly discuss a bit of bit about how that could be an essential position or an essential level within the subsequent few years so far as geopolitics and macro and markets.

Felix:

The Taiwanese are additionally Chinese language initially. And I feel 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 feel 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 inside the subsequent 5 years.

That was an enormous mistake. It mustn’t have put a time restrict on that. In Taiwan you’ve gotten individuals who favor getting nearer with China and you’ve got others which are in opposition to it. And on January thirteenth there may be the following election and you’ve got two opposition events that collectively within the polls have 53% which are in favor of getting nearer with China. Not integrating 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. We now have to attend for the result, however you even have to know 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 feel the alternate of know-how goes each methods and so they 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 struggle developing there.

I feel that will be dangerous. I feel the Taiwanese working in China are telling their individuals again residence they’re handled very effectively, they make a superb dwelling, the whole lot 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, at any time when they made a brand new innovation or new chip or so that they at all times gave China a 3 to 4 months lead over others to maintain them completely happy.

Meb:

Nicely, it’s attention-grabbing, we have been speaking about this the opposite day with anyone the place everyone seems to be so excited and scorching bothered about lots of the American giant tech. And significantly if you’re speaking about investments in shares, American semiconductor firms.

And should you look in Taiwan and elsewhere, South Korea particularly, there occurs to be lots of semiconductor firms, additionally ones that commerce at a a lot bigger valuation low cost than among the ones in the USA do, together with a number of which have been two, three baggers this yr alone.

It’s at all times 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 whole investing profession at this level.

Felix:

No, I feel the catalyst will likely be when the Magnificent Seven decline, that would be the set off. After which you should have perhaps one other yet one more cycle the place the US outperforms and that must be it.

As a result of then the world order will get rearranged and the US dominance is in decline. And I feel capital might then go to different locations as soon as the whole lot is settled out and we’ve got a brand new world order that appears to be secure. However we undergo this order and the volatility in geopolitics for an additional 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 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 every other durations you suppose that this sort of feels a bit of like or related so far as we have 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 and so they acquired a really excessive a number of due to that and the cash was flowing into them and ultimately many of the shares with a number of exceptions declined badly thereafter and a few even disappeared.

Meb:

One of many huge matters for the previous couple years, definitely right here but in addition definitely in different nations like Argentina has been inflation. And inflation definitely spiked to fairly worrisome ranges and it seems like now in the USA’ most really feel prefer it’s conquered and is finished with. How do you type of have a look at this twin matter, and you may take this the place you are feeling acceptable, of each inflation and bonds? I’ve seen you discuss rather a lot 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:

Nicely, to start 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 continually change the composition of the buyer worth index to make it look decrease than inflation actually is or the price of dwelling actually is. Within the 70s, they took power out and meals out as a result of they stated, “We can’t management it,” as if individuals wouldn’t drive automobiles and wouldn’t eat. It’s nonsense, after all.

And not too long ago they took out healthcare insurance coverage premiums and changed it with healthcare insurance coverage firm’s income as a result of the one went down and the opposite went up. So I feel there are lots of foolish video games being performed and should you take the basket of 1990, you’re at 9 or 10 p.c inflation at the moment 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 apart from this yr.

This yr is the primary time in just about 50 years that the US was costlier than Switzerland. And that tells you that the US has an inflation downside. And naturally the speed of change goes down and the bottom impact helps and commodities are serving to, oil helps and we get perhaps right down to 2% or one thing like that subsequent yr, however the cycle behaves very a lot in response to the cycle within the late 60s and 70s and which means it’ll backside out subsequent yr after which it goes up.

And if I’m proper concerning the recession subsequent yr and so they 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 got seen lately will make commodities rise very, very dramatically in my opinion.

So you should have in all probability an oil worth in 26 of 150, 200 {dollars}. That offers you a CPI of greater than 10%. So I feel we could have one other inflation cycle forward of us and I feel 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 feel subsequent time it’s acquired to be worse as a result of if you go the second time over 10%, I don’t imagine that the 10-year treasuries will keep at 5. After which should you go to eight or one thing like that, then after all the query is can our system deal with that? And I feel it can’t. We could have a disaster. We could have in all probability some of the extreme recession disaster within the later 20s. And that’s what we in all probability must make the structural modifications in our authorities’s expenditures and revenue assertion. That may solely be made throughout a disaster.

You can not minimize entitlements and you can not increase taxes dramatically if you’re in a pleasing circumstance, if the whole lot goes regular. However if you’re in a painful disaster that hurts everybody and the world is trying very grim, then I feel you are able to do it. Then the politicians can promote it to their constituencies. All of us must sacrifice one thing and must 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 feel is tough for lots of traders. Nicely, there’s one particularly that’s nudging at all-time highs proper now and that’s after all the shiny steel that generates in all probability extra assorted opinions than virtually something on the market apart from my Aussie and Canadian pals, they’re on board.

However you’ve talked about gold up to now. Most People, I really feel like that hearken to the present, don’t personal a lot of their portfolios. My Chinese language and Indian pals, it’s a distinct story. What are you enthusiastic about 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 feel 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 personal debased fiat cash, perhaps no one 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 price 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. If you return, it’s a fairly common eight yr cycle and the cycle low, the theoretical cycle low is due subsequent summer time in summer time of 24. And that goes along with my expectation of a recession and an enormous change in financial coverage.

So I feel from that theoretical cycle low, which is able to in all probability be a better worth than now, we are going to see an acceleration on the upside for about 4 years. So I’m fairly constructive on gold. I’ve 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 isn’t broadly owned and I feel it will likely be extra broadly 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 really making an attempt to do it the place they have been promoting gold bars at Costco and so they instantly bought 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 this planet.

I realized a fantastic reality this yr that Costco places out, it’s sells one thing like half of the world’s cashews. Which I feel is the worst of all of the nuts, listeners, however individuals 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 must get my passport and go journey a bit of bit whereas I acquired the time and the prospect on the, let’s discuss concerning the greenback and world currencies. Is it lots of the Quants will say that buying energy parity US greenback is pricey. Is that your view? What do you consider the worldwide FX market, the place there’s alternative the place we should always keep away from?

Felix:

I feel the greenback has topped final September I feel 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 will merely make a brand new regulation in opposition to foreigners and also you lose the whole lot, as occurred in Russia. And subsequently, I feel capitalists from all around the world are nonetheless searching for a secure haven and switch to the US.

So the issue for the greenback will then come and arrive when the US central financial institution begins to ease financial coverage. The system is such as a result of the greenback continues 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 largest pond tightens greater than all of the others little ponds. And once they start to ease subsequent yr, then I feel sooner or later from summer time on or so, the greenback might have a much bigger downside and will decline fairly sharply. You misunderstood me, I stated the US is costlier than Switzerland, not the opposite method round.

Meb:

Yeah. Yeah, US costly, so we acquired to journey.

Felix:

Yeah.

Meb:

Proper. Proper. Proper. Proper.

Felix:

Yeah. Yeah. That’s proper. Yeah, you need to journey. You need 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 speak about all these completely different areas, what’s an space as we speak about avoiding the massive Magazine Seven, are there pockets of the US or specific 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 massive dudes.”

Felix:

I feel 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 definitely result in a bear cycle. And as I defined, I feel the expansion shares as a result of Magnificent Seven will endure greater than the under-owned, than the under-owned shares that are worth shares and are cyclical shares, et cetera.

They’re cheaply priced. Lots of the cyclicals and worth shares aren’t costly. They’re cheaply priced, they’re under-owned and that’s what I wish to purchase within the subsequent decline. Proper now we’ve got one sector going in opposition to the market that’s power. Vitality will likely be a horny sector going ahead, however it’s now correcting as a result of the worth of oil is discounting a worldwide recession and it’s coming down due to that.

It’s really telling us a really completely different story from the inventory markets. The inventory markets are telling us the whole lot is rosy whereas the commodity markets and oil particularly is telling us it’s not so wonderful, it’s not so good on the market. So, I feel when oil goes right down to let’s say 60 or under 60 in a number of months’ time, then I feel it’s a horny place to purchase power producers, oil producers and fuel producers in good jurisdictions, in secure jurisdictions.

So North America can be a superb place. Shares that produce in North America I feel would be the front-runners. They’re enticing. I additionally suppose that the commodity associated shares, producers of copper and aluminum and people issues will likely be enticing 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’ve gotten 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 are bought out and also you do not need the promoting strain. Whereas these which are over-owned, they’re declining greater than others.

You wish to purchase on the backside those which are under-owned and don’t decline as a lot. So you need to research relative efficiency through the decline. And I feel you will see that many enticing 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 at all times used to have his 10 surprises. If we sit down a yr from now and Felix says, “Okay, that is trying again on it, in all probability the largest shock of 2024 or so otherwise, what do you suppose goes to be the largest shock of the yr?” Something in that class of what you suppose may 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 must pay my bills. Let’s go forward and e-book these.

Felix:

Completely. You need to perceive that the Japanese didn’t tighten coverage and so they 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 straightforward 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 largest funding forex.

When you need to finance a challenge, you at all times go to the currencies which are the most cost effective to fund and the weakest, low cost and weak. Rates of interest have been low, the 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 modifications, and it in all probability has already modified, when that development modifications, it goes very quick. I bear 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 one in every of my higher trades. I used lots of choices and I had one in every of my superb years in these in 1998. Yeah.

Meb:

You’ve gotten 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 must be a present opinion, nevertheless it could possibly be a present opinion, however what’s one thing that you’d say or imagine that many of the desk wouldn’t agree with? So one thing that’s non-consensus that you simply imagine that the majority of your skilled friends, not retail, however skilled friends might 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 and so they laughed at me really. And now we’ve got wars and I feel the wars will intensify, they may develop greater. We could have extra wars and we run the danger of a struggle the place the massive guys become involved. I wouldn’t say that Chinese language tanks will roll by means of the US or so, however I feel it could possibly be a struggle the place we attempt to sabotage their electrical grid and so they ours and the web and issues like that.

And it will do lots of harm ultimately to our economies. And I feel this isn’t taken into consideration once I hearken to Wall Avenue, the mainstream guys. They go and so they have their playbook, they’ve their formulation, and I feel these formulation within the subsequent few years you possibly can throw out of the window. It doesn’t work that method.

Meb:

Is there something usually that sort of on the time led you to that perception? Was it simply rhetoric from numerous teams? Was it long-term traits so far as societal sort of macro points?

Felix:

It’s the fundamental concept of the [inaudible 00:35:40] entice. That is when you’ve gotten a state of affairs the place you’ve gotten a hegemon that controls the whole lot on this planet or in a area and hastily new energy rises comes up and challenges the man, then you’ve gotten a battle. And that battle state of affairs we’ve got seen within the final 500 years, 16 instances. 12 instances, it led to direct struggle 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 feel 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 can be inescapable, the battle would come. It at all times begins with straight conflicts after which it turns into ultimately militarily.

And I feel 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 facet.

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 facet. It’s a really harmful state of affairs. I’ve not too long ago heard that it’s the primary time that the Israeli commando should at all times 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 apprehensive about.

Meb:

As you look again in your profession, that is going to be a tricky one, you talked about the yen already, what has been your most memorable funding? It could possibly be good, it could possibly be dangerous, it could possibly be in between, however simply the one which seared into your mind.

Felix:

Probably the most memorable funding was a foul funding. That at all times… The 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 bought out my gold and silver and I assumed it might go right down to 36 after which bounce to 45 or so. So at 36 I purchased silver, and as I purchased, it simply began to go down, down, down, down, down. And I 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 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 might decline to 12 backside within the 12, 10 space after which bounced again to 24. So I waited and about six months later I purchased thrice as a lot between 10 and 12 after which it rallied to 24 the place I 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 sensible. Good alone is nice sufficient.

Meb:

Yeah. Silver, we didn’t point out but in the present day, however I used to be making an attempt to drag up a chart to see the place we’re sitting in the present day 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 bit of catch-up to be doing.

Felix:

I feel silver will likely be attention-grabbing .and significantly from subsequent yr on, I feel silver on the way in which up, as soon as the dear steel cycle begins to achieve traction, then I feel silver will outperform gold on the way in which up. It’s an industrial steel. It’s not the financial steel. However nonetheless, I feel it’ll break 50 and go to new highs.

Meb:

Nicely, you heard it right here. Felix, if individuals wish to comply with your writing, your analysis, your consulting, the place do they go? What’s the most effective 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 in the present day and completely happy holidays to you and all of yours.

Felix:

Pleased holidays to you too. And thanks very a lot for having me. It’s been an honor. Thanks, Meb

Meb:

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