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 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 recommendations? All for sponsoring an episode? Electronic mail us [email protected]
Hyperlinks from the Episode:
1:23 – Welcome Felix to the present
2:14 – What the world appears to be like like as 2023 winds down
3:30 – Why China is just not interested by 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 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
Be taught extra about Felix : FelixZulauf.com
Transcript:
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Disclaimer:
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Meb:
Howdy, my buddies. 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 knowledgeable 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 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 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 appears like a magical time this time of 12 months.
Felix:
I’m unsure it’s. We’ve got 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 around the globe 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 fingers this 12 months 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 appear like to you in the present day as we wind down 2023?
Felix:
We’ve got three areas in very totally different standing. We’ve got China that’s type of weakish. It has misplaced its momentum. It has to digest the overhang from the true property growth and the credit score growth and that can take at the very least 10 years if not longer. So China won’t be a locomotive to the world financial system for a lot of, a few years.
China is attempting to handle by way 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 % is sweet sufficient for them and in actuality, three or 4 % what they publish might be one to 2 %, no more than that.
Meb:
And are you selecting that up from type of what they’ve been saying is the perception quite 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 development growth, actual property growth, the credit score growth, as soon as that’s over, the overhang is great. And give it some thought, the US has what? 140 million models of house in the entire us. The overhang of empty properties 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 really shrinking barely, however it would speed up the shrinking over time. So there isn’t any means they will develop out of the issue. That’s unattainable. Due to this fact, they need to restructure, they need to take the write-offs and ultimately 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 are going to 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 properly. And I feel that can 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.
Just lately, in opposition to the expectation of a lot of the consultants China tighten financial coverage, which the western world didn’t perceive, however they did so to guard their forex. They didn’t need their forex to go down and break down badly. They need to preserve the whole lot in steadiness till 2024 after 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 might damage 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 don’t have any saying on the planet actually. Economically they’ve been robust, it’s an enormous market, however all of them rely upon China for exports and US for exports and US on protection and they’ll come out very weak.
The financial 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 financial system really. Different elements are doing a little bit bit higher. Spain is doing very properly. Italy has now outperformed Germany I feel for nearly 4 years.
So internet I’d say Europe is type of stagnating borderline to recession. And if the US goes into recession, we are going to most likely additionally go into recession and the recession will deepen considerably. The US is the odd man. It has been the strongest financial system, supplied some huge cash to the folks to spend. And that fiscal help helped in fact. And I feel the tightening during the last 12 months 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 may have 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 little bit bit stronger than anticipated after which weaker than anticipated and fall into recession. And that ought to damage the company earnings.
Let’s say it’s going to be a light recession as a result of we wouldn’t 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%. Normally in a recession they go down 25%. And you are taking a backside, a bear market backside, a a number of of 16, you arrive at about 3,500.
That’s not what folks take into account once they enter the market nowadays. And really the market has some technical points which are very harmful. And I’m referring to the great focus of shares. Focus of shares that carry out very properly and are the beneficiaries of weak inflows of cash on the way in which up can pull the market index up dramatically as performed this 12 months.
The 493 shares didn’t in addition to the Magnificent Seven, however understand that whenever you spend money on a passive means and also you index or whenever you spend money on an energetic means and also you do closet indexing as most guys are doing, then you find yourself with most likely 80% of the fairness invested worldwide is benchmarked. And that signifies that 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 may have a focus like by no means earlier than on the planet. And that was very good on the way in which up. I feel it would 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 need to 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 obese these Magnificent Seven, in any other case you might be performed.
And I just lately 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, then you definitely get the transfer down that will get exaggerated and has nothing to do with the true financial system. Folks don’t perceive that because the transfer up right here doesn’t have a lot to do with the true financial system.
Meb:
Man, Felix, you touched on so much there, so we’re going to dive into a number of issues. The primary, I used to be laughing as you had been speaking about Italy as a result of one in all 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 means on reside TV I can work in Mama Mia.” However Italian shares had been having an amazing 12 months and so I believed I couldn’t do it however I used to be in a position to squeeze it in. I don’t assume anybody perceive what I used to be speaking about, however I had an viewers of 1 so I lastly made it.
Okay, so there’s a handful of issues that I’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 acquired one arising within the US subsequent 12 months, Argentina. However the one which I’ve seen you write so much about is the significance of the Taiwanese election. Possibly speak a little bit bit about how which may be an vital position 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 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 concerning Taiwan, there wouldn’t be an issue and we wouldn’t speak about it and Xi wouldn’t have made the error of claiming we 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 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 got to attend for the result, however you even have to grasp that about 10% of the Taiwanese workforce already energetic in China.
They work there and the consultants and the engineers from semiconductor corporations, Taiwanese semiconductors, they’re additionally working in China. And although I feel 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 struggle arising there.
I feel that may be unhealthy. I feel the Taiwanese working in China are telling their folks again house they’re handled very properly, they make a great dwelling, the whole lot is okay. And over time, if no one would provoke, over time the 2 would get nearer collectively. The Taiwanese by the way in which, each time they made a brand new innovation or new chip or so that they at all times gave China a 3 to 4 months lead over others to maintain them comfortable.
Meb:
Nicely, it’s attention-grabbing, we had been speaking about this the opposite day with any person the place everyone seems to be so excited and sizzling bothered about numerous the American massive tech. And notably whenever you’re speaking about investments in shares, American semiconductor corporations.
And should 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 among the ones in america do, together with a number of which were two, three baggers this 12 months 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, however 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’ll have possibly one other another cycle the place the US outperforms and that ought to be it.
As a result of then the world order will get rearranged and the US dominance is in decline. And I feel capital could then go to different locations as soon as the whole lot 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 skim a few of these books about among the shares you simply needed to personal. You couldn’t not personal a few of these corporations in 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 assume that this sort of feels a little bit like or related so far as we take a look at the playbook on what could transpire?
Felix:
The NIFTY 50s had been one, the TMT shares in 2000 had been one other one, after which the conglomerates within the late 60s had been one other one. The conglomerates like Litton Industries, Teledyne and all these conglomerates had been then in favor and so they acquired a really excessive a number of due to that and the cash was flowing into them and ultimately a lot 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, actually right here but additionally actually in different international locations like Argentina has been inflation. And inflation actually spiked to fairly worrisome ranges and it appears like now in america’ 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’ll take this the place you are 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 start with, the patron value index has by no means gone down. It has at all times gone up. And inflation is the speed of change of the patron value index. And so they continuously change the composition of the patron value index to make it look decrease than inflation actually is or the price of dwelling actually is. Within the 70s, they took 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 just lately they took out healthcare insurance coverage premiums and changed it with healthcare insurance coverage firm’s income as a result of the one went down and the opposite went up. So I feel there are numerous foolish video games being performed and should you take the basket of 1990, you might be at 9 or 10 % 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 12 months.
This 12 months 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 downside. 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 12 months, however the cycle behaves very a lot in response to the cycle within the late 60s and 70s and meaning it’ll backside out subsequent 12 months after which it goes up.
And if I’m proper concerning the recession subsequent 12 months and so they inject liquidity, that can make commodities go up and also you compound that by the rivalry between the BRICS and the G7 and the BRICS management three quarters of the commodities of the world and they’ll make it most value than ever. And the underinvestment we’ve seen in recent times will make commodities rise very, very dramatically for my part.
So you’ll have most likely an oil value in 26 of 150, 200 {dollars}. That provides you a CPI of greater than 10%. So I feel we can 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 whenever 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 in fact the query is can our system deal with that? And I feel it can’t. We can have a disaster. We can have most likely some of the 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 revenue assertion. That may solely be made throughout a disaster.
You can not reduce entitlements and you can not increase taxes dramatically in case you are in a pleasing circumstance, if the whole lot goes regular. However in case you are 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 need to sacrifice one thing and must do it for the good thing about our nation. So that is what I see forward.
Meb:
You allude to commodities, which is a subject that I feel is tough for lots of traders. Nicely, there’s one specifically that’s nudging at all-time highs proper now and that’s in fact the shiny steel that generates most likely extra diversified opinions than virtually something on the market apart from my Aussie and Canadian buddies, they’re on board.
However you’ve talked about gold prior to now. Most Individuals, I really feel like that take heed to the present, don’t personal a lot of their portfolios. My Chinese language and Indian buddies, it’s a unique story. What are you occupied with the shiny steel, do you assume 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 whenever you go right into a disaster, gold is cash whenever you want it as a result of your personal debased fiat cash, possibly no one needs 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 folks shopping for fits for 2000, 3000 {dollars} and that’s most likely the value vary. Gold is on an eight-year cycle. While you return, it’s a fairly common eight 12 months cycle and the cycle low, the theoretical cycle low is due subsequent summer time in summer time of 24. And that goes along with my expectation of a recession and an enormous change in financial coverage.
So I feel from that theoretical cycle low, which can most likely be the next value 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 just lately seen a survey amongst American traders, 71% of these polled confirmed they owned between zero and one % of their belongings. So gold is just not extensively owned and I feel will probably be extra extensively 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 really attempting to do it the place they had 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 the planet.
I realized an amazing truth this 12 months 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 folks 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 must get my passport and go journey a little bit bit whereas I acquired the time and the possibility on the, let’s speak concerning the greenback and world currencies. Is it numerous the Quants will say that buying energy parity US greenback is pricey. Is that your view? What do you concentrate on the worldwide FX market, the place there’s alternative the place we must always keep away from?
Felix:
I 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 typically within the first quarter, most likely along with when the inventory market tops out. And from then I count on a restoration. I have no idea how lengthy it’ll will final, however in a non-safe world, whenever 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’ll merely make a brand new regulation in opposition to foreigners and also you lose the whole lot, as occurred in Russia. And due to this fact, 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 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 once they start to ease subsequent 12 months, then I feel in some unspecified time in the future from summer time on or so, the greenback could have a much bigger downside and will decline fairly sharply. You misunderstood me, I stated the US is costlier than Switzerland, not the opposite means round.
Meb:
Yeah. Yeah, US costly, so we acquired to journey.
Felix:
Yeah.
Meb:
Proper. Proper. Proper. Proper.
Felix:
Yeah. Yeah. That’s proper. Yeah, 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 among the lowest ranges it’s been in a very long time. So I’m positively enthusiastic about heading again to Japan. In order we speak about all these totally different areas, what’s an space as we speak about avoiding the large Magazine Seven, are there pockets of the US or explicit international locations elsewhere that you just’re interested by? It could possibly be kinds like worth development, it could possibly be sectors, it could possibly be international locations? Something that you just’re say, “Okay, this appears to be like so much higher different than simply avoiding the large dudes.”
Felix:
I feel we’re nearly altering from development to worth. We’re within the late stage of this pull cycle from final 12 months’s low final fall. It’s the third up leg and that up leg when it ends will almost definitely result in a bear cycle. And as I defined, I feel the expansion shares as a result of Magnificent Seven will undergo greater than the under-owned, than the under-owned shares that are worth shares and are cyclical shares, et cetera.
They’re cheaply priced. Most of the cyclicals and worth shares will not be 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 will likely be a gorgeous sector going ahead, however it’s now correcting as a result of the value of oil is discounting a world recession and it’s coming down due to that.
It’s really telling us a really totally different story from the inventory markets. The inventory markets are telling us the whole lot is rosy whereas the commodity markets and oil specifically is telling us it’s not so wonderful, it’s not so good on the market. So, I feel when oil goes all the way down to let’s say 60 or beneath 60 in a number of months’ time, then I feel it’s a gorgeous place to purchase vitality producers, oil producers and gasoline producers in good jurisdictions, in secure jurisdictions.
So North America could be a great place. Shares that produce in North America I feel would be the front-runners. They’re enticing. I additionally assume that the commodity associated shares, producers of copper and aluminum and people issues will likely be enticing shares within the subsequent cycle, however it’s too early to purchase. They may 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 are bought out and also you wouldn’t have the promoting stress. 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 feel you will see many enticing 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 12 months from now and Felix says, “Okay, that is trying again on it, most likely the most important shock of 2024 or so otherwise, what do you assume goes to be the most important shock of the 12 months?” Something in that class of what you assume is perhaps the large shock? Or we touched on it already.
Felix:
The massive shock will likely be that the yen would be the strongest forex.
Meb:
Oh man, I higher pay for my journey forward of time.
Felix:
Completely.
Meb:
I must pay my bills. Let’s go forward and guide these.
Felix:
Completely. You need to perceive that the Japanese didn’t tighten coverage and so they had been the one ones that didn’t tighten and all of the others have tightened. When all of the others start to ease, the Japanese won’t ease as a result of they’ve been straightforward all the way in which and due to this fact their forex has declined. The Japanese yen might be undervalued on a buying energy parity by 40% or so, and it has been used as the most important funding forex.
When you must finance a challenge, you at all times go to the currencies which are the most affordable to fund and the weakest, low-cost and weak. Rates of interest had been low, the forex was weak, that was the best forex. What meaning 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 most likely has already modified, when that development modifications, it goes very quick. I keep in mind the final time we had such a state of affairs was within the late 90s, 1998. I used to be in that commerce in 1998. In 97 the Asian disaster began and due to that the yen was very weak, a really weak forex, and the greenback was a really robust forex. And greenback yen was at 148 and three weeks later, in three weeks it went from 148 to 108.
Meb:
My goodness.
Felix:
It was a dramatic commerce and it was one in all my higher trades. I used numerous choices and I had one in all my superb years in these in 1998. Yeah.
Meb:
You have got 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 need to be a present opinion, however it could possibly be a present opinion, however what’s one thing that you’d say or imagine that a lot of the desk wouldn’t agree with? So one thing that’s non-consensus that you just 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 really. And now we’ve wars and I feel the wars will intensify, they are going to develop greater. We can have extra wars and we run the chance of a struggle the place the large guys become involved. I wouldn’t say that Chinese language tanks will roll by way 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 numerous harm ultimately to our economies. And I feel this isn’t taken into consideration once I take heed 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’ll be able to throw out of the window. It doesn’t work that means.
Meb:
Is there something typically that type of on the time led you to that perception? Was it simply rhetoric from numerous teams? Was it long-term tendencies so far as societal type of macro points?
Felix:
It’s the essential concept of the [inaudible 00:35:40] lure. That is when you may have a state of affairs the place you may have a hegemon that controls the whole lot on the planet or in a area and swiftly new energy rises comes up and challenges the man, then you may have a battle. And that battle state of affairs we’ve seen within the final 500 years, 16 occasions. 12 occasions, 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 could 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 the 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 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 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 just lately heard that it’s the primary time that the Israeli commando should at all times first speak to the US earlier than they begin one thing as a result of the US is realizing how harmful the [inaudible 00:37:45] is and will turn into. So that’s one thing I’m very anxious about.
Meb:
As you look again in your profession, that is going to be a troublesome one, you talked about the yen already, what has been your most memorable funding? It could possibly be good, it could possibly be unhealthy, it could possibly be in between, however simply the one which seared into your mind.
Felix:
Probably the most memorable funding was a nasty funding. That at all times… The great investments you speak about, however the unhealthy investments you always remember.
Meb:
They keep on 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 believed it might 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 utterly confused. I used to be 30 years outdated at the moment and it damage. 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 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 damage badly and I always remember that and it taught me the lesson by no means attempt to be tremendous sensible. Good alone is sweet sufficient.
Meb:
Yeah. Silver, we didn’t point out but in the present day, however I used to be attempting 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 possibly we acquired a little bit catch-up to be doing.
Felix:
I feel silver will likely be attention-grabbing .and notably from subsequent 12 months on, I feel silver on the way in which up, as soon as the valuable steel cycle begins to realize 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 however, I feel 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 search out extra details about you and what you’re as much as?
Felix:
You go to www.felixzulauf.com and you’ll write to [email protected] 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 comfortable holidays to you and all of yours.
Felix:
Completely happy holidays to you too. And thanks very a lot for having me. It’s been an honor. Thanks, Meb
Meb:
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