This week we sit down with legendary investor Felix Zulauf. The Switzerland-based hedge fund manager was former head of institutional portfolio department at UBS and Global Macro Strategist. He has been a regular member of the Barron’s Roundtable for the past 30 years.
Zulauf’s parents insisted he learn a trade if he was not going to go to college, and so he selected banking. He found it boring, while stocks where far more interesting. Curious as to “what factors drove markets,” he began exploring various schools of thought. He was disappointed at the time to learn that “Europe was lacking in thought leadership.”
His search eventually sent Zulauf to spend a few weeks working as an intern with the legendary technician Bob Farrell in his technical department; Zulauf was seated right next to Bob Prechter on the desk. His work studying technical analysis and cycles changed the way he looked at the question of what drives market cycles. He notes that every cycle has a different driver; the last cycle was Housing and Credit; this cycle is China.
Zulauf got to know Alan Greenspan when the future Fed Chairman was an advisor to UBS; they met every three months to discuss world affairs. While Greenspan’s forecasts were “not very good,” he was an economic historian who helped educate Zulauf on the shift from rising inflation to declining inflation and the deflationary processes. Zulauf’s observation about Greenspan was the excess concern regarding another Great Depression; he was “very concerned about another traumatic 1930s,” and that this trauma guided his monetary policy as Fed Chairman, which was described as “Always too easy for way too long.”
In the early 1980s, Zulauf moved UBS to overweight equities at 65 percent versus the traditional 50% for European banks. In the Fall of 1987, he ordered all of his portfolio managers to move to zero percent equities — an unprecedented move for a conservative European bank. This preceded the 1987 crash, which turned out to be much deeper and longer lasting in Europe versus the United States. He made numerous other legendary calls, including shorting Japan in 1989, warning about the dot com collapse in 2000; he was bearish going into the financial crisis, and in March 8th 2009 said a 40% rally was coming. He does not consider himself a permabear, a moniker that has stuck with him since his call on the 1987 crash. He described himself as “a raging bull” in the 1980s, “pounding the table and nobody was listening.”
Some of his favorite books are referenced here.
You can stream/download the full conversation, including the podcast extras, on Bloomberg, iTunes, Overcast, and Soundcloud. Our earlier podcasts can all be found on iTunes, Soundcloud, Overcast and Bloomberg.
Next week, we speak with Jeremy Schwartz, Director of Research at WisdomTree Investments. Schwartz was Professor Jeremy Siegel’s Head Research Assistant and helped with the research and the writing of “Stocks for the Long Run.”