Felix Zulauf: The Die is Cast

I have been fortunate in my career to have met a number of investing legends. At the top of that list is Felix Zulauf.

Felix is an advisor to a fund that one of my office colleagues raises assets for. We were fortunate that Felix was in NYC yesterday briefly for a Barron’s conference (he has been a roundtable member for 20 years). Afterwards, he swung by the office and spent some time discussing the situation in Europe and elsewhere with us.

The highlights:

• We are on a spiral caused by mass credit creation, excessive borrowing, reckless spending, and a enormous credit crisis. The end result is inevitable, and most likely unavoidable.
• The Europeans have created their own credit crisis, and it is attributable, in part, to the creation of the EU. They EU is following a path similar to what the US went through n 2008-09.
• There will be yet another bailout in the US and QE3 (or more) — but not until the situation gets much worse; That refers to both the market and the economy.
• There was a window for an Austrian economics solution, but that opportunity has passed. Worse still, imposing Austrian economics on weak countries here and now will only make the situation worse, causing a recession or making any contraction worse.
• Equities remain in a long term secular bear market dating back to 2000, one that is unlikely to end before 2017.
• Multiples will compress over this time period. Look at more than P/E — consider Price to Sales as well.
• Of all the currencies in thew world, the US Dollar is the least ugly. That says less about the Greenback than it does about the Euro and Yen.
• The Eurozone was problematic since its inception. You cannot have a monetary union but not simultaneous fiscal union.
• Policy makers inevitably punish savers.
• Germany is the creditor to the rest of Europe. Given their history, their biggest concern is hyper inflation, while nations like Greece, Italy and Ireland are facing deflation
• Watch for rising populism in response to economic turmoil. It is already happening in Europe, and will eventually come to the US.
• The political situation in Europe is unlikely to improve until the crisis is much worse. The same is likely true in the US.
• There will be an eventual repricing of all currencies.
• Greece may very well will leave the Euro, but Italy is probably to big to do so.
• Countries that can print & devalue their own currencies get to invite tourists, stimulate economy, and climb out of their morass. Tied to the Euro, they simply cannot.
• There is no currency that will retain its value over the next decade except Gold. Every other currency is in a race to print and devalue, inflating away the debt.
• There is no price target on Gold, but he expects higher prices, and perhaps significantly higher prices over the next decade.

All told, a fascinating discussion.



Interview with Felix Zulauf


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