Home Financial Advisor Episode #515: Felix Zulauf – 2024 Macro Outlook Not Rosy – Meb Faber Analysis

Episode #515: Felix Zulauf – 2024 Macro Outlook Not Rosy – Meb Faber Analysis

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Episode #515: Felix Zulauf – 2024 Macro Outlook Not Rosy – Meb Faber Analysis



Visitor: Felix Zulauf is the founder and CEO of Zulauf Consulting, a boutique analysis and consulting agency.

Recorded: 12/14/2023  |  Run-Time: 49:41


Abstract:  In at this time’s episode, Felix shares his view of the worldwide funding panorama from Asia to Europe to the US. He shares why the tailwinds of decrease inflation might reverse and lead inflation to rise above 10%. He additionally touches on the state of gold, the Greenback and different currencies, and why he’s centered on the upcoming election in Taiwan.


Feedback or solutions? Taken with sponsoring an episode? Electronic mail us Suggestions@TheMebFaberShow.com

Hyperlinks from the Episode:

  • 1:23 – Welcome Felix to the present
  • 2:14 – What the world seems to be like as 2023 winds down
  • 3:30 – Why China will not be considering excessive progress
  • 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 at this time
  • 17:38 – Ideas on fastened earnings and inflation
  • 22:17 – Gold
  • 25:20 – The US greenback and different currencies
  • 31:21 – What’s going to greatest shock in 2024?
  • 33:36 – One thing Felix believes that of most his friends don’t
  • 38:01 – Felix’s most memorable funding
  • Study extra about Felix : FelixZulauf.com

 

Transcript:

Welcome Message:

Welcome to The Meb Faber Present the place the main target is on serving to you develop and protect your wealth. Be part of us as we focus on the craft of investing and uncover new and worthwhile concepts all that can assist you develop wealthier and wiser. Higher investing begins right here.

Disclaimer:

Meb Faber is the co-founder and chief funding officer at Cambria Funding Administration. Because of trade rules, he won’t 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 mates. We bought an episode at this time. I’ve been trying ahead to this dialog for an extended, very long time. Excited to share our chat with well-known macro skilled Felix Zulauf, founding father of Zulauf Consulting. He was beforehand the worldwide strategist for UBS and later ran his personal asset administration agency.

In at this time’s episode, Felix shares his view of the worldwide funding panorama from Asia to Europe to the US. He shares why the tailwinds of decrease inflation 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:

Effectively, it’s at all times been a problem for me to regulate to California in the course of 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 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 will 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 palms 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 like it’s at all times within the horizon. What’s the world appear like to you at this time as we wind down 2023?

Felix:

We’ve got three areas in very totally different standing. We’ve got China that’s kind 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 can take no less than 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 via this and the restructure step-by-step, present stimulus to help however not stimulus to progress. It’s not on the Chinese language agenda to create excessive progress. Respectable progress, three, 4 p.c is nice sufficient for them and in actuality, three or 4 p.c what they publish might be one to 2 p.c, no more than that.

Meb:

And are you choosing that up from form of what they’ve been saying is the perception reasonably from simply indicators you’re ? What makes you come to kind of that perception as you look to the far East?

Felix:

I’ve stated that for a few years. Once I noticed the overhang from 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 loads to digest and sadly they don’t have a inhabitants that’s rising.

It’s truly shrinking barely, however it is going to speed up the shrinking over time. So there isn’t any means they will develop out of the issue. That’s not possible. Subsequently, 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 they usually need to recapitalize the banking trade they usually need to monetize plenty of 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 now have our issues, structural issues as effectively. And I feel that can solely come within the second half of the 20s. However we’ll run into a serious 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 accomplish that.

Not too long ago, in opposition to the expectation of a lot of the specialists 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 stability 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 will damage them.

Then we now have Europe. Europe is the large loser on this entire recreation of rivalry and new association of world order. Europe is weak, it has no military to talk of that may defend its personal territory they usually haven’t any saying on the planet actually. Economically they’ve been robust, it’s an enormous market, however all of them depend 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 gas led vitality and nuclear vitality like Germany that’s very weak. They’re destroying the German financial system truly. Different components are doing somewhat bit higher. Spain is doing very effectively. Italy has now outperformed Germany I feel for nearly 4 years.

So web I’d say Europe is kind 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 financial system, offered some huge cash to the folks to spend. And that fiscal help helped after all. And I feel the tightening over the past 12 months and a half or so will ultimately be felt throughout 2024.

However the consensus of a tender touchdown could be very pronounced. And what I’ve discovered in my profession is when you have got such a pronounced consensus and all of the specialists and forecasts agree, one thing else goes to occur. So I feel the financial system will first be somewhat 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 might imply that company earnings let’s say go down 10%. It may go down extra however let’s say gentle 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 keep in mind after they enter the market nowadays. 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 executed this 12 months.

The 493 shares didn’t in addition to the Magnificent Seven, however remember the fact that once you put money into a passive means and also you index or once you put money into an lively 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 put money into a world index, nearly two thirds of the cash flows into the US market and out of that cash one third flows into seven shares.

So you have got 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 is going to 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 should you needed to outperform, you needed to chubby these Magnificent Seven, in any other case you’re executed.

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 actual financial system. Folks 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 loads 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 considered one 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 each 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 have been having a terrific 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 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 form 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 bought one developing within the US subsequent 12 months, Argentina. However the one which I’ve seen you write loads about is the significance of the Taiwanese election. Perhaps speak somewhat 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 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 need 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 have got 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 a point to make it occur. We’ve got to attend for the result, however you even have to know that about 10% of the Taiwanese workforce already lively in China.

They work there and the specialists and the engineers from semiconductor firms, Taiwanese semiconductors, they’re additionally working in China. And although I feel the change of know-how goes each methods they usually commerce and they’re pleasant, after all the Chinese language are sometimes aggressive with their navy maneuvers et cetera. However I don’t see a conflict developing there.

I feel that might be dangerous. I feel the Taiwanese working in China are telling their folks again residence they’re handled very effectively, they make a very good dwelling, every little thing 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, each time they made a brand new innovation or new chip or in order that they at all times gave China a 3 to 4 months lead over others to maintain them comfortable.

Meb:

Effectively, it’s fascinating, we have been speaking about this the opposite day with anyone the place everyone seems to be so excited and scorching bothered about plenty of the American massive tech. And notably once 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 plenty of semiconductor firms, additionally ones that commerce at a a lot bigger valuation low cost than a few of the ones in america do, together with a number of which were two, three baggers this 12 months alone.

It’s at all times fascinating to see the worth disconnect, which we’ve been speaking about for fairly a very long time, US versus the remainder of the world. I don’t know if there’ll ever be a catalyst for this to shut, but it surely looks like a whole investing profession at this level.

Felix:

No, I feel the catalyst will probably 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 might then go to different locations as soon as every little thing is settled out and we now have 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 skim 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 firms in a long time previous due to the identical kind of idea the place it simply dragged the entire market cap weight up. Are there some other durations you suppose that this type of feels somewhat like or related so far as we take a look at the playbook on what might transpire?

Felix:

The NIFTY 50s have been one, the TMT shares in 2000 have been one other one, after which the conglomerates within the late 60s have been one other one. The conglomerates like Litton Industries, Teledyne and all these conglomerates have been then in favor they usually bought 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 large 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 seems like now in america’ most really feel prefer it’s conquered and is finished with. How do you kind of take a look at this twin subject, and you’ll take this the place you’re feeling acceptable, of each inflation and bonds? I’ve seen you speak loads about optimism and the bond fastened earnings world is fairly excessive proper now. What’s your ideas on that normal space of fastened earnings and inflation?

Felix:

Effectively, to start with, the patron worth index has by no means gone down. It has at all times gone up. And inflation is the speed of change of the patron worth index. And so they consistently change the composition of the patron worth index to make it look decrease than inflation actually is or the price of dwelling actually is. Within the 70s, they took vitality out and meals out as a result of they stated, “We can not management it,” as if folks 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 earnings as a result of the one went down and the opposite went up. So I feel there are plenty of foolish video games being performed and should you take the basket of 1990, you’re at 9 or 10 p.c inflation nowadays 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 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 possibly right down to 2% or one thing like that subsequent 12 months, however the cycle behaves very a lot in accordance with the cycle within the late 60s and 70s and meaning it’ll backside out subsequent 12 months after which it goes up.

And if I’m proper concerning the recession subsequent 12 months they usually 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 price than ever. And the underinvestment we now have seen lately will make commodities rise very, very dramatically in my opinion.

So you’ll have most likely an oil worth in 26 of 150, 200 {dollars}. That provides you a CPI of greater than 10%. So I feel we may have one other inflation cycle forward of us and I feel within the subsequent inflation cycle the bond markets will probably 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 bought 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 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 not. We may have a disaster. We may have most likely probably the most extreme recession disaster within the later 20s. And that’s what we most likely have to make the structural adjustments in our authorities’s expenditures and earnings assertion. That may solely be made throughout a disaster.

You can’t minimize entitlements and you can’t elevate taxes dramatically if you’re in a nice 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 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 have to do it for the good thing about our nation. So that is what I see forward.

Meb:

You allude to commodities, which is a subject that I feel is tough for lots of traders. Effectively, there’s one particularly that’s nudging at all-time highs proper now and that’s after all the shiny metallic that generates most likely extra assorted opinions than nearly something on the market apart 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 take heed to the present, don’t personal a lot of their portfolios. My Chinese language and Indian mates, it’s a distinct story. What are you fascinated by the shiny metallic, do you suppose it’s fascinating, not fascinating, 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 feel 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, possibly 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 value about an costly go well with. 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. Once you return, it’s a fairly common eight 12 months cycle and the cycle low, the theoretical cycle low is due subsequent summer time in summer time of 24. And that goes along with my expectation of a recession and an enormous change in financial coverage.

So I feel from that theoretical cycle low, which can most likely be the next worth than now, we’ll see an acceleration on the upside for about 4 years. So I’m fairly constructive on gold. I’ve not too long ago seen a survey amongst American traders, 71% of these polled confirmed they owned between zero and one p.c of their property. So gold will not be broadly owned and I feel will probably be extra broadly owned as costs go up. Most individuals purchase essentially the most on the prime and never on the backside.

Meb:

I laughingly joined Costco as a result of I used to be attempting, I don’t know if it was a promotion, they’re attempting to get press or they’re truly attempting to do it the place they have been promoting gold bars at Costco they usually instantly 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 the planet.

I discovered a terrific 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 have to get my passport and go journey somewhat bit whereas I bought the time and the prospect on the, let’s speak concerning the greenback and international currencies. Is it plenty of the Quants will say that buying energy parity US greenback is dear. Is that your view? What do you concentrate on the worldwide FX market, the place there’s alternative the place we should always keep away from?

Felix:

I 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, 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, once you examine the attractiveness of currencies and locations and jurisdictions, the US nonetheless comes out very excessive on the highest.

So I wouldn’t put, as an American, I wouldn’t put my cash into China or Russia or Argentina or no matter since you can not belief these jurisdictions. They will merely make a brand new legislation in opposition to foreigners and also you lose every little thing, as occurred in Russia. And subsequently, I feel capitalists from everywhere in the world are nonetheless searching for a protected haven and switch to the US.

So the issue for the greenback will then come and arrive when the US central financial institution begins to ease financial coverage. The system is such as a result of the greenback continues to be the dominating foreign money on this entire 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 largest pond tightens greater than all of the others little ponds. And after they start to ease subsequent 12 months, then I feel sooner or later from summer time on or so, the greenback might have an even 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 bought to journey.

Felix:

Yeah.

Meb:

Proper. Proper. Proper. Proper.

Felix:

Yeah. Yeah. That’s proper. Yeah, you need to journey. You must journey.

Meb:

My listeners are uninterested in 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 undoubtedly 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 simply’re considering? It might be types like worth progress, it might be sectors, it might be international locations? Something that you simply’re say, “Okay, this seems to be loads higher different than simply avoiding the large dudes.”

Felix:

I feel we’re nearly altering from progress 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 more than likely result in a bear cycle. And as I defined, I feel the expansion shares because of the Magnificent Seven will undergo greater than the under-owned, than the under-owned shares that are worth shares and are cyclical shares, et cetera.

They’re cheaply priced. Most of the cyclicals and worth shares aren’t costly. They’re cheaply priced, they’re under-owned and that’s what I need to purchase within the subsequent decline. Proper now we now have one sector going in opposition to the market that’s vitality. Vitality will probably 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 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 high-quality, it’s not so good on the market. So, I feel when oil goes right 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 fuel producers in good jurisdictions, in protected jurisdictions.

So North America could be a very good place. Shares that produce in North America I feel would be the front-runners. They’re engaging. I additionally suppose that the commodity associated shares, producers of copper and aluminum and people issues will probably be engaging shares within the subsequent cycle, but it surely’s too early to purchase. They can even go down with the market however to not the identical diploma as the expansion shares.

And normally when you have got 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 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 need to research relative efficiency in the course of the decline. And I feel one can find many engaging firms among the many industrials and the cyclicals commodity associated additionally, vitality that we’ll be verifying for the following up-cycle.

Meb:

The late Byron Wien at all times used to have his 10 surprises. If we sit down a 12 months from now and Felix says, “Okay, that is trying again on it, most likely the largest shock of 2024 or so otherwise, what do you suppose goes to be the largest shock of the 12 months?” Something in that class of what you suppose is perhaps the large shock? Or we touched on it already.

Felix:

The large shock will probably 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 have to pay my bills. Let’s go forward and guide these.

Felix:

Completely. You must perceive that the Japanese didn’t tighten coverage they usually have been the one ones that didn’t tighten and all of the others have tightened. When all of the others start to ease, the Japanese won’t ease as a result of they’ve been simple all the way in which and subsequently 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 largest funding foreign money.

When you need to finance a venture, 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 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 development adjustments, and it most likely has already modified, when that development adjustments, 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 robust 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 considered one of my higher trades. I used plenty of choices and I had considered one of my superb 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 speak about what view do I maintain that’s 75% of my investing skilled friends. So if we sit down at a desk in Switzerland or Florida for espresso or lunch and Felix says one thing, the overwhelming majority of the desk would shake their heads and say, “He’s loopy.”

What’s a view? And this might be a framework, it doesn’t need to be a present opinion, but it surely might be a present opinion, however what’s one thing that you’d say or imagine that a lot of the desk wouldn’t agree with? So one thing that’s non-consensus that you simply imagine that almost all 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 everyone was shaking their heads they usually laughed at me truly. And now we now have wars and I feel the wars will intensify, they are going to develop larger. We may have extra wars and we run the chance of a conflict the place the large guys become involved. I wouldn’t say that Chinese language tanks will roll via the US or so, however I feel it might be a conflict the place we attempt to sabotage their electrical grid they usually ours and the web and issues like that.

And this may do plenty of harm ultimately to our economies. And I feel this isn’t taken under consideration after I take heed to Wall Avenue, the mainstream guys. They go they usually have their playbook, they’ve their formulation, and I feel these formulation within the subsequent few years you may throw out of the window. It doesn’t work that means.

Meb:

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

Felix:

It’s the essential thought of the [inaudible 00:35:40] lure. That is when you have got a scenario the place you have got a hegemon that controls every little thing on the planet or in a area and swiftly new energy rises comes up and challenges the man, then you have got a battle. And that battle scenario we now have seen within the final 500 years, 16 instances. 12 instances, 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 feel 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 ultimately militarily.

And I feel 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 might again the BRICS aspect. It’s a really harmful scenario. I’ve not too long ago heard that it’s the primary time that the Israeli commando should at all times first speak to the US earlier than they begin one thing as a result of the US is realizing how harmful the [inaudible 00:37:45] is and will turn into. So that’s one thing I’m very 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:

Essentially the most memorable funding was a nasty funding. That at all times… The nice investments you speak about, however the dangerous investments you always remember.

Meb:

They follow you.

Felix:

My worst funding was when silver peaked at 50 and I noticed that peak. I bought out my gold and silver and I believed it will 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 previous at the moment and it damage. 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 will 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 damage 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 at this time, however I used to be attempting to tug up a chart to see the place we’re sitting at this time as gold is pulling it up. Proper round 20, 24, 25. So.

Felix:

Yeah. Yeah.

Meb:

Not all time highs. So possibly we bought somewhat catch-up to be doing.

Felix:

I feel silver will probably be fascinating .and notably from subsequent 12 months on, I feel silver on the way in which up, as soon as the dear metallic cycle begins to achieve traction, then I feel silver will outperform gold on the way in which up. It’s an industrial metallic. It’s not the financial metallic. However nonetheless, I feel it’ll break 50 and go to new highs.

Meb:

Effectively, 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 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’ll 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 at this time and comfortable 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:

Podcast listeners will publish present notes to at this time’s dialog at mebfaber.com/podcast. For those who love the present, should you hate it, shoot us suggestions on the mebfabershow.com. We like to learn the critiques. Please evaluate us on iTunes and subscribe the present anyplace good podcasts are discovered. Thanks for listening, mates, and good investing.

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