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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 immediately’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? Excited by 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 appears like as 2023 winds down
- 3:30 – Why China just isn’t eager about excessive development
- 11:45 – How the Taiwanese election would possibly have an effect on markets
- 15:15 – Worth disconnect between the US & the remainder of the world
- 16:38 – Historic parallels to the market setting immediately
- 17:38 – Ideas on mounted earnings 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:
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Disclaimer:
Meb Faber is the co-founder and chief funding officer at Cambria Funding Administration. Resulting from trade rules, 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 data, go to cambriainvestments.com.
Meb:
Hi there, my mates. We received an episode immediately. I’ve been trying ahead to this dialog for a protracted, 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 immediately’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 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 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 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 seems like a magical time this time of yr.
Felix:
I’m unsure it’s. We’ve no snow proper now down within the cities, so it could 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 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 like it’s at all times within the horizon. What’s the world appear to be to you immediately as we wind down 2023?
Felix:
We’ve three areas in very totally different standing. We’ve China that’s type 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 no 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 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. Respectable development, three, 4 p.c is sweet 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 type of what they’ve been saying is the perception somewhat from simply indicators you’re taking a look at? 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 super. And give it some thought, the US has what? 140 million items of dwelling in the entire us. The overhang of empty properties in China is about 100 million. In order that’s lots 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 isn’t a method they will develop out of the issue. That’s inconceivable. Due to this fact, they need to restructure, they need to take the write-offs and finally they need to recapitalize the native governments, that are the large gamers in that and so they need to recapitalize the banking trade and so they need to monetize numerous the debt.
However they may solely achieve this as soon as the western world is on the level to take action additionally, as a result of we’ve our issues, structural issues as properly. And I believe that may solely come within the second half of the 20s. However we’ll run into a significant disaster in a number of years’ time, fiscal disaster, et cetera, after which we’ll attempt to stimulate out of it. And as soon as the western world stimulates, the Chinese language will achieve this.
Lately, 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 foreign money. They didn’t need their foreign money to go down and break down badly. They need to maintain every little thing in steadiness till 2024 once we most likely have a recession within the US and central financial institution will start to chop charges and the pump liquidity into the system. Then they will do it additionally, however in any other case it could harm them.
Then we’ve Europe. Europe is the large loser on this complete sport of rivalry and new association of world order. Europe is weak, it has no military to talk of that may defend its personal territory and so they haven’t any saying on this planet actually. Economically they’ve been sturdy, it’s a giant 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 gas led vitality and nuclear vitality like Germany that’s very weak. They’re destroying the German economic system truly. Different elements are doing a bit of bit higher. Spain is doing very properly. Italy has now outperformed Germany I believe for nearly 4 years.
So web I’d say Europe is type of stagnating borderline to recession. And if the US goes into recession, we’ll most likely additionally go into recession and the recession will deepen considerably. The US is the odd man. It has been the strongest economic system, supplied some huge cash to the folks to spend. And that fiscal help helped in fact. 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 mushy touchdown may be very pronounced. And what I’ve discovered in my profession is when you’ve 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 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 would not have an enormous stock overhang or something of that kind. That would imply that company income let’s say go down 10%. It may go down extra however let’s say delicate 10%. Often in a recession they go down 25%. And you’re taking a backside, a bear market backside, a a number of of 16, you arrive at about 3,500.
That’s not what folks take note of after they enter the market today. And really the market has some technical points which are very harmful. And I’m referring to the super focus of shares. Focus of shares that carry out very properly and are the beneficiaries of weak inflows of cash on the way in which up can pull the market index up dramatically as completed this yr.
The 493 shares didn’t in addition to the Magnificent Seven, however needless to say once you spend money on a passive method and also you index or once you spend money on an lively method and also you do closet indexing as most guys are doing, then you find yourself with most likely 80% of the fairness invested worldwide is benchmarked. And that implies that in case 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 a focus like by no means earlier than on this planet. And that was very good on the way in which up. I believe it can exaggerate the transfer on the way in which down. So when a correction comes, when managers are hit with redemptions, after they have to boost money, et cetera, they need to promote what they personal an excessive amount of of and people are the heavyweights of the Magnificent Seven as a result of in case you needed to outperform, you needed to obese these Magnificent Seven, in any other case you’re completed.
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 unsure whether or not that’s true or not, however I may think about it’s. And if that’s true and the marketplace for no matter motive turns down, you then get the transfer down that will get exaggerated and has nothing to do with the 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 lots 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 after I go on TV is I ask my son, he’s six. I say, “You bought to present me a phrase to work into the interview as a problem and so that you simply’ll watch it and make it enjoyable for me, as a result of in any other case I get bored speaking about a few of the stuff that’s the day by day 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 method on dwell TV I can work in Mama Mia.” However Italian shares have been having an excellent 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’d like to get into. We’re going to get again to the Magnificent Seven in a minute, however one of many issues I’ve seen you write about as we’re speaking about type of geopolitics, everyone seems to be so centered within the macro world at all times on the large occasions, what’s occurring in Ukraine, what’s occurring in Israel, elections, we received one developing within the US subsequent yr, Argentina. However the one which I’ve seen you write lots about is the significance of the Taiwanese election. Perhaps discuss a bit of 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 discuss it and Xi wouldn’t have made the error of claiming we need to combine Taiwan throughout the subsequent 5 years.
That was a giant mistake. It shouldn’t have put a time restrict on that. In Taiwan you’ve individuals who favor getting nearer with China and you’ve got others which are in opposition to it. And on January thirteenth there’s the subsequent 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 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 might win the elections. I hoped that Xi or China would lean on these two events to a point to make it occur. We’ve to attend for the end result, however you even have to grasp that about 10% of the Taiwanese workforce already lively in China.
They work there and the consultants and the engineers from semiconductor corporations, Taiwanese semiconductors, they’re additionally working in China. And although I believe the change of know-how goes each methods and so they commerce and they’re pleasant, in fact the Chinese language are sometimes aggressive with their navy maneuvers et cetera. However I don’t see a conflict developing there.
I believe that will be dangerous. I believe the Taiwanese working in China are telling their folks again dwelling they’re handled very properly, they make a very good residing, every little thing 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, every 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 glad.
Meb:
Nicely, it’s attention-grabbing, we have been speaking about this the opposite day with someone the place everyone seems to be so excited and sizzling bothered about numerous the American massive tech. And notably once you’re speaking about investments in shares, American semiconductor corporations.
And in case you look in Taiwan and elsewhere, South Korea particularly, there occurs to be numerous semiconductor corporations, additionally ones that commerce at a a lot bigger valuation low cost than a few of the ones in the USA do, together with a number of which were 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, but it surely looks like a complete investing profession at this level.
Felix:
No, I believe the catalyst might be when the Magnificent Seven decline, that would be the set off. After which you should have perhaps one other yet another cycle the place the US outperforms and that needs to be it.
As a result of then the world order will get rearranged and the US dominance is in decline. And I believe capital could then go to different locations as soon as every little thing is settled out and we’ve a brand new world order that appears to be secure. However we undergo this order and the volatility in geopolitics for one more 5 to eight years or so.
Meb:
I ponder is there a historic parallel or analog? In my head I’m considering of phrases like NIFTY 50. You return and browse a few of these books about a few of the shares you simply needed to personal. You couldn’t not personal a few of these corporations in many years previous due to the identical type of idea the place it simply dragged the entire market cap weight up. Are there another intervals you suppose that this type of feels a bit of like or comparable so far as we take 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 and so they received a really excessive a number of due to that and the cash was flowing into them and finally many of the shares with a number of exceptions declined badly thereafter and a few even disappeared.
Meb:
One of many massive 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 the USA’ most really feel prefer it’s conquered and is finished with. How do you type of take a look at this twin subject, and you may take this the place you are feeling acceptable, of each inflation and bonds? I’ve seen you discuss lots about optimism and the bond mounted earnings world is fairly excessive proper now. What’s your ideas on that normal space of mounted earnings and inflation?
Felix:
Nicely, to start with, the buyer value index has by no means gone down. It has at all times gone up. And inflation is the speed of change of the buyer value index. They usually always change the composition of the buyer value index to make it look decrease than inflation actually is or the price of residing actually is. Within the 70s, they took vitality out and meals out as a result of they stated, “We can’t management it,” as if folks wouldn’t drive vehicles 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 income as a result of the one went down and the opposite went up. So I believe there are numerous foolish video games being performed and in case 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 at all times been cheaper than in Switzerland aside 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 accordance with the cycle within the late 60s and 70s and meaning 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 price than ever. And the underinvestment we’ve seen in recent times will make commodities rise very, very dramatically in my opinion.
So you should have most likely an oil value in 26 of 150, 200 {dollars}. That provides you a CPI of greater than 10%. So I believe we can have one other inflation cycle forward of us and I believe within the subsequent inflation cycle the bond markets might be crushed much more badly than within the final one. And within the final one was fairly heavy.
I imply, a 20-year treasury ETF went down 50% from 2020 to 23. And I believe subsequent time it’s received to be worse as a result of once you go the second time over 10%, I don’t imagine that the 10-year treasuries will keep at 5. After which in case you 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 can have a disaster. We can have most likely one of the crucial extreme recession disaster within the later 20s. And that’s what we most likely must make the structural modifications in our authorities’s expenditures and earnings assertion. That may solely be made throughout a disaster.
You can not lower entitlements and you can’t increase taxes dramatically if you’re in a pleasing circumstance, if every little thing goes regular. However if you’re 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 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 believe is difficult for lots of traders. Nicely, there’s one particularly that’s nudging at all-time highs proper now and that’s in fact the shiny steel that generates most likely extra assorted opinions than virtually something on the market aside from my Aussie and Canadian mates, they’re on board.
However you’ve talked about gold up to now. Most Individuals, I really feel like that hearken to the present, don’t personal a lot of their portfolios. My Chinese language and Indian mates, it’s a unique story. What are you eager 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 shifting from the West to the worldwide South, China, Russia, different BRICS nations are shopping for it and the West is promoting it. And I believe they’ve began historical past as a result of once you go right into a disaster, gold is cash once you want it as a result of your personal debased fiat cash, perhaps no person needs at the moment, however gold is at all times accepted. And gold is risky, goes up and down.
It displays the debasement of the fiat currencies. Gold they are saying is at all times value about an costly go well with. So there are folks shopping for fits for 2000, 3000 {dollars} and that’s most likely the worth vary. Gold is on an eight-year cycle. If you return, it’s a fairly common eight yr cycle and the cycle low, the theoretical cycle low is due subsequent summer season in summer season of 24. And that goes along with my expectation of a recession and a giant change in financial coverage.
So I believe from that theoretical cycle low, which is able to most likely be a better value than now, we’ll see an acceleration on the upside for about 4 years. So I’m fairly constructive on gold. I’ve 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 extensively owned and I believe it will likely be extra extensively owned as costs go up. Most individuals purchase probably the most on the prime and never on the backside.
Meb:
I laughingly joined Costco as a result of I used to be attempting, I don’t know if it was a promotion, they’re attempting to get press or they’re truly attempting to do it the place they have been promoting gold bars at Costco and so they instantly bought out in fact. 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 excellent reality this yr that Costco places out, it’s sells one thing like half of the world’s cashews. Which I believe is the worst of all of the nuts, listeners, however folks like them. So I don’t know what, perhaps Costco places some magic seasoning mud on these. So tied together with this subject of gold, inflation, you talked about the US being cheaper than Switzerland.
So my takeaway from all that is I must get my passport and go journey a bit of bit whereas I received the time and the prospect on the, let’s discuss concerning the greenback and international currencies. Is it numerous 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 anticipate to finish typically within the first quarter, most likely along with when the inventory market tops out. And from then I anticipate a restoration. I have no idea how lengthy it’ll will final, however in a non-safe world, once you evaluate 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 legislation in opposition to foreigners and also you lose every little thing, as occurred in Russia. And due to this fact, I believe capitalists from everywhere in the world are nonetheless on the lookout for a secure haven and switch to the US.
So the issue for the greenback will then come and arrive when the US central financial institution begins to ease financial coverage. The system is such as a result of the greenback continues to be the dominating foreign money on this complete foreign money system. It’s dollar-based. When the central financial institution sees the greenback declines as a result of it creates extra {dollars} than all of different currencies.
And if the central banks tighten, the greenback goes up as a result of it tightens, the most important pond tightens greater than all of the others little ponds. And after they start to ease subsequent yr, then I believe sooner or later from summer season on or so, the greenback could have an even 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 received to journey.
Felix:
Yeah.
Meb:
Proper. Proper. Proper. Proper.
Felix:
Yeah. Yeah. That’s proper. Yeah, you must 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 a few of the lowest ranges it’s been in a very long time. So I’m positively enthusiastic about heading again to Japan. In order we discuss all these totally different areas, what’s an space as we discuss avoiding the large Magazine Seven, are there pockets of the US or specific nations elsewhere that you simply’re eager about? It might be types like worth development, it might be sectors, it might be nations? Something that you simply’re say, “Okay, this appears lots higher different than simply avoiding the large dudes.”
Felix:
I believe we’re nearly altering from development to worth. We’re within the late stage of this pull cycle from final yr’s low final fall. It’s the third up leg and that up leg when it ends will almost definitely 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. Lots of the cyclicals and worth shares are usually 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 in opposition to the market that’s vitality. Power might 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 little thing is rosy whereas the commodity markets and oil particularly 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 under 60 in a number of months’ time, then I believe it’s a beautiful place to purchase vitality producers, oil producers and fuel producers in good jurisdictions, in secure jurisdictions.
So North America could be a very good 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 might be engaging shares within the subsequent cycle, but it surely’s too early to purchase. They may also go down with the market however to not the identical diploma as the expansion shares.
And normally when you’ve 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 would not have the promoting strain. Whereas these which are over-owned, they’re declining greater than others.
You need to purchase on the backside those which are under-owned and don’t decline as a lot. So you must examine relative efficiency throughout the decline. And I believe you’ll discover many engaging corporations 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 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, most likely the most important shock of 2024 or so in another way, what do you suppose goes to be the most important shock of the yr?” Something in that class of what you suppose is likely to be the large shock? Or we touched on it already.
Felix:
The large shock might be that the yen would be the strongest foreign money.
Meb:
Oh man, I higher pay for my journey forward of time.
Felix:
Completely.
Meb:
I must pay my bills. Let’s go forward and ebook 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 simple all the way in which and due to this fact their foreign money has declined. The Japanese yen might be undervalued on a buying energy parity by 40% or so, and it has been used as the most important funding foreign money.
When you must finance a mission, 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 foreign money was weak, that was the perfect foreign money. What meaning is that you’ve an enormous [inaudible 00:32:41] place on the market from these financings.
And when the pattern modifications, and it most likely has already modified, when that pattern modifications, it goes very quick. I bear in mind the final time we had such a scenario was within the late 90s, 1998. I used to be in that commerce in 1998. In 97 the Asian disaster began and due to that the yen was very weak, a really weak foreign money, and the greenback was a really sturdy foreign money. And greenback yen was at 148 and three weeks later, in three weeks it went from 148 to 108.
Meb:
My goodness.
Felix:
It was a dramatic commerce and it was one in every of my higher trades. I used numerous choices and I had one in every of my excellent years in these in 1998. Yeah.
Meb:
You may have fairly a number 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 need to be a present opinion, but it surely might 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 could not agree with you on.
Felix:
5 years in the past I began to jot down about coming wars and all people was shaking their heads and so they laughed at me truly. And now we’ve wars and I believe the wars will intensify, they may develop greater. We can have extra wars and we run the danger of a conflict the place the large guys become involved. I wouldn’t say that Chinese language tanks will roll by means of the US or so, however I believe it might be a conflict the place we attempt to sabotage their electrical grid and so they ours and the web and issues like that.
And this may do numerous injury finally to our economies. And I believe this isn’t taken into consideration after I hearken to Wall Avenue, the mainstream guys. They go and so they have their playbook, they’ve their formulation, and I believe these formulation within the subsequent few years you may throw out of the window. It doesn’t work that method.
Meb:
Is there something usually that 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 essential thought of the [inaudible 00:35:40] entice. That is when you’ve a scenario the place you’ve a hegemon that controls every little thing on this planet or in a area and impulsively new energy rises comes up and challenges the man, then you’ve a battle. And that battle scenario we’ve seen within the final 500 years, 16 occasions. 12 occasions, it led to direct conflict of the 2 rivals and 3 times it led to deputy wars and just one time it labored with out wars.
And that was the change from the Mom of Nice Britain to the [inaudible 00:36:20] of the US. And I believe we’re in such a scenario once more. And when Trump began to attempt to push China on commerce, it was clear on the [inaudible 00:36:35] the battle could be inescapable, the battle would come. It at all times begins with straight conflicts after which it turns into finally militarily.
And I believe we’re shifting 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 in opposition to Hezbollah. Hezbollah is in Syria, and Syria and Russia have a navy settlement. Syria is backed by Iran, as is Hezbollah. It may 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 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 grow to be. So that’s one thing I’m very frightened about.
Meb:
As you look again in your profession, that is going to be a troublesome one, you talked about the yen already, what has been your most memorable funding? It 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 foul funding. That at all times… 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 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 utterly confused. I used to be 30 years previous at the moment and it harm. I needed to flip the display screen 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 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 3 times 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. Sensible alone is sweet sufficient.
Meb:
Yeah. Silver, we didn’t point out but immediately, however I used to be attempting to tug up a chart to see the place we’re sitting immediately as gold is pulling it up. Proper round 20, 24, 25. So.
Felix:
Yeah. Yeah.
Meb:
Not all time highs. So perhaps we received a bit of catch-up to be doing.
Felix:
I believe silver might be attention-grabbing .and notably from subsequent yr 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:
Nicely, you heard it right here. Felix, if folks 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 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 immediately and glad holidays to you and all of yours.
Felix:
Glad holidays to you too. And thanks very a lot for having me. It’s been an honor. Thanks, Meb
Meb:
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