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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 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 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 targeted on the upcoming election in Taiwan.
Feedback or recommendations? Involved in 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 shouldn’t be interested by 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 surroundings 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 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:
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Disclaimer:
Meb Faber is the co-founder and chief funding officer at Cambria Funding Administration. Resulting from business rules, he won’t focus on any of Cambria’s funds on this podcast. All opinions expressed by podcast individuals are solely their very own opinions and don’t replicate the opinion of Cambria Funding Administration or its associates. For extra info, go to cambriainvestments.com.
Meb:
Howdy, my pals. We acquired an episode in the present day. I’ve been wanting ahead to this dialog for an extended, 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 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 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 targeted on the upcoming election in Taiwan. Please get pleasure from 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:
Properly, it’s all the time 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 yr.
Felix:
I’m unsure it’s. We now have 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 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 palms this yr about potential recessions. And I feel everybody retains ready for one to return and right here within the US and it simply looks as if it’s all the time within the horizon. What’s the world appear like to you in the present day as we wind down 2023?
Felix:
We now have three areas in very totally different standing. We now have China that’s form 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 may take not less than 10 years if not longer. So China won’t be a locomotive to the world economic system for a lot of, a few years.
China is making an attempt to handle by means of 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 % is nice 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 relatively from simply indicators you’re taking a look at? What makes you come to form 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 large. And give it some thought, the US has what? 140 million items of dwelling 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 really shrinking barely, however it’ll speed up the shrinking over time. So there isn’t any approach they will develop out of the issue. That’s not possible. Subsequently, they must restructure, they must take the write-offs and finally they must recapitalize the native governments, that are the massive gamers in that and so they must recapitalize the banking business and so they must monetize a number of the debt.
However they may solely accomplish that as soon as the western world is on the level to take action additionally, as a result of we’ve got our issues, structural issues as properly. And I feel that may solely come within the second half of the 20s. However we are going to run into a serious disaster in a couple 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.
Not too long ago, towards 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 wish to maintain every little thing in stability 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 will damage them.
Then we’ve got Europe. Europe is the massive 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 this planet actually. Economically they’ve been robust, it’s an enormous market, however all of them rely on 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 really. Different components are doing a little bit bit higher. Spain is doing very properly. Italy has now outperformed Germany I feel for nearly 4 years.
So web I might say Europe is form 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 economic system, offered some huge cash to the individuals to spend. And that fiscal help helped in fact. And I feel the tightening over the past yr and a half or so will finally be felt throughout 2024.
However the consensus of a smooth touchdown may be very pronounced. And what I’ve discovered in my profession is when you will have such a pronounced consensus and all of the consultants and forecasts agree, one thing else goes to occur. So I feel the economic 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 should not have an enormous stock overhang or something of that kind. That would imply that company earnings let’s say go down 10%. It might go down extra however let’s say delicate 10%. Often 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 individuals bear in mind once they enter the market lately. And really 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 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 remember that while you spend money on a passive approach and also you index or while you spend money on an lively approach 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 the event 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 will have a focus like by no means earlier than on this planet. And that was very good on the way in which up. I feel it’ll 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 must promote what they personal an excessive amount of of and people are the heavyweights of the Magnificent Seven as a result of in the event you wished to outperform, you needed to chubby these Magnificent Seven, in any other case you’re completed.
And I 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 might 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 economic system. Individuals 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 loads there, so we’re going to dive into a couple of issues. The primary, I used to be laughing as you have been speaking about Italy as a result of one among 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 every 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 approach on reside TV I can work in Mama Mia.” However Italian shares have been having a fantastic yr 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 might 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 targeted within the macro world all the time on the massive occasions, what’s occurring in Ukraine, what’s occurring in Israel, elections, we acquired one developing within the US subsequent yr, Argentina. However the one which I’ve seen you write loads about is the significance of the Taiwanese election. Perhaps discuss a little bit bit about how which may be an vital function 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 wish 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 will have individuals who favor getting nearer with China and you’ve got others which are towards 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 now have to attend for the 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 firms, 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 often aggressive with their army maneuvers et cetera. However I don’t see a battle developing there.
I feel that will be unhealthy. I feel the Taiwanese working in China are telling their individuals again dwelling they’re handled very properly, they make residing, every little thing is okay. And over time, if no person 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 all the time gave China a 3 to 4 months lead over others to maintain them blissful.
Meb:
Properly, it’s fascinating, we have been speaking about this the opposite day with any person the place everyone seems to be so excited and scorching bothered about a number of the American massive tech. And notably while you’re speaking about investments in shares, American semiconductor firms.
And in the event you look in Taiwan and elsewhere, South Korea particularly, there occurs to be a number of semiconductor firms, additionally ones that commerce at a a lot bigger valuation low cost than among the ones in the USA do, together with a couple of which have been two, three baggers this yr alone.
It’s all the time 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, nevertheless it looks as if a complete investing profession at this level.
Felix:
No, I feel the catalyst can be when the Magnificent Seven decline, that would be the set off. After which you’ll have possibly one other yet 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’ve got 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’m wondering 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 among 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 form of idea the place it simply dragged the entire market cap weight up. Are there some other intervals you assume that this sort of feels a little bit like or comparable 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 and so they acquired a really excessive a number of due to that and the cash was flowing into them and finally a lot of the shares with a couple 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 nations like Argentina has been inflation. And inflation actually spiked to fairly worrisome ranges and it appears like now in the USA’ most really feel prefer it’s conquered and is finished with. How do you form 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 discuss loads 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:
Properly, to begin with, the patron value index has by no means gone down. It has all the time gone up. And inflation is the speed of change of the patron value index. They usually consistently change the composition of the patron 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 not management it,” as if individuals wouldn’t drive automobiles and wouldn’t eat. It’s nonsense, in fact.
And lately 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 a number of foolish video games being performed and in the event you take the basket of 1990, you’re at 9 or 10 % inflation these days within the US. And I come to the US for 50 years and in all these 50 years eating places have all the time been cheaper than in Switzerland apart from this yr.
This yr is the primary time in just about 50 years that the US was dearer than Switzerland. And that tells you that the US has an inflation drawback. 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 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 value than ever. And the underinvestment we’ve got seen lately 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 offers 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 can 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 while you go the second time over 10%, I don’t consider that the 10-year treasuries will keep at 5. After which in the event 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 not. We may have a disaster. We may have most likely one of the vital 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 lower entitlements and you can’t increase taxes dramatically in case you are in a pleasing circumstance, if every little thing goes regular. However in case you are in a painful disaster that hurts everybody and the world is wanting very grim, then I feel you are able to do it. Then the politicians can promote it to their constituencies. All of us must 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 feel is difficult for lots of buyers. Properly, 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 apart from my Aussie and Canadian pals, they’re on board.
However you’ve talked about gold up to now. Most People, I really feel like that take heed to the present, don’t personal a lot of their portfolios. My Chinese language and Indian pals, it’s a unique story. What are you enthusiastic about the shiny steel, do you assume 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 while you go right into a disaster, gold is cash while you want it as a result of your personal debased fiat cash, possibly no person needs at the moment, however gold is all the time accepted. And gold is risky, goes up and down.
It displays the debasement of the fiat currencies. Gold they are saying is all the time value about an costly go well with. So there are individuals shopping for fits for 2000, 3000 {dollars} and that’s most likely the value vary. Gold is on an eight-year cycle. Whenever you return, it’s a fairly common eight yr 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 lately seen a survey amongst American buyers, 71% of these polled confirmed they owned between zero and one % of their property. So gold shouldn’t be broadly owned and I feel will probably be extra broadly 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 making an attempt, I don’t know if it was a promotion, they’re making an attempt to get press or they’re really making an attempt 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 following couple of years when Costco turns into the largest distributor of gold bars on this planet.
I discovered a fantastic reality this yr 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 individuals 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 discuss concerning the greenback and world currencies. Is it a number of 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 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 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, while 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 not belief these jurisdictions. They will merely make a brand new legislation towards foreigners and also you lose every little thing, 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 largest pond tightens greater than all of the others little ponds. And once they start to ease subsequent yr, then I feel sooner or later from summer time on or so, the greenback might have an even bigger drawback and should decline fairly sharply. You misunderstood me, I stated the US is dearer than Switzerland, not the opposite approach 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, it’s a must to journey. It’s a must 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 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 massive Magazine Seven, are there pockets of the US or explicit nations elsewhere that you just’re interested by? It might be types like worth progress, it might be sectors, it might be nations? Something that you just’re say, “Okay, this seems to be loads higher different than simply avoiding the massive dudes.”
Felix:
I feel we’re nearly altering from progress 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 feel the expansion shares because of the Magnificent Seven will endure 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 should not costly. They’re cheaply priced, they’re under-owned and that’s what I wish to purchase within the subsequent decline. Proper now we’ve got one sector going towards the market that’s vitality. Power can be a horny 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 every little thing is rosy whereas the commodity markets and oil particularly is telling us it’s not so superb, 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 couple of months’ time, then I feel it’s a horny place to purchase vitality producers, oil producers and gasoline producers in good jurisdictions, in secure jurisdictions.
So North America could be place. Shares that produce in North America I feel would be the front-runners. They’re engaging. I additionally assume that the commodity associated shares, producers of copper and aluminum and people issues can be engaging shares within the subsequent cycle, nevertheless it’s too early to purchase. They may also go down with the market however to not the identical diploma as the expansion shares.
And often when you will have a change in management, it’s often 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 should not have the promoting stress. Whereas these which are over-owned, they’re declining greater than others.
You wish to purchase on the backside those which are under-owned and don’t decline as a lot. So it’s a must to examine relative efficiency throughout the decline. And I feel you 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 all the time used to have his 10 surprises. If we sit down a yr from now and Felix says, “Okay, that is wanting again on it, most likely the largest shock of 2024 or so in a different way, what do you assume goes to be the largest shock of the yr?” Something in that class of what you assume is perhaps the massive shock? Or we touched on it already.
Felix:
The massive shock can 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 ebook these.
Felix:
Completely. It’s a must 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 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 largest funding forex.
When it’s a must to finance a mission, you all the time 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 forex was weak, that was the perfect 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 among my higher trades. I used a number of choices and I had one among my excellent years in these in 1998. Yeah.
Meb:
You could have fairly a couple 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 must be a present opinion, nevertheless it might be a present opinion, however what’s one thing that you’d say or consider that a lot of the desk wouldn’t agree with? So one thing that’s non-consensus that you just consider that the majority of your skilled friends, not retail, however skilled friends might not agree with you on.
Felix:
5 years in the past I began to write down about coming wars and everyone was shaking their heads and so they laughed at me really. And now we’ve got wars and I feel the wars will intensify, they may develop greater. We may have extra wars and we run the chance of a battle the place the massive guys get entangled. I wouldn’t say that Chinese language tanks will roll by means of the US or so, however I feel it might be a battle the place we attempt to sabotage their electrical grid and so they ours and the web and issues like that.
And this may do a number of harm finally to our economies. And I feel this isn’t taken into consideration once I take heed to Wall Road, 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 possibly can throw out of the window. It doesn’t work that approach.
Meb:
Is there something usually that type of on the time led you to that perception? Was it simply rhetoric from numerous teams? Was it long-term developments 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 will have a state of affairs the place you will have a hegemon that controls every little thing on this planet or in a area and swiftly new energy rises comes up and challenges the man, then you will have a battle. And that battle state of affairs we’ve got seen within the final 500 years, 16 occasions. 12 occasions, it led to direct battle 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 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 all the time begins with straight conflicts after which it turns into finally militarily.
And I feel we’re shifting in 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 towards Hezbollah. Hezbollah is in Syria, and Syria and Russia have a army settlement. Syria is backed by Iran, as is Hezbollah. It might 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 might again the BRICS facet. It’s a really harmful state of affairs. I’ve lately heard that it’s the primary time that the Israeli commando should all the time 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 turn out to be. So that’s one thing I’m very nervous about.
Meb:
As you look again in your profession, that is going to be a tricky one, you talked about the yen already, what has been your most memorable funding? It might be good, it might be unhealthy, 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 all the time… The nice investments you speak about, however the unhealthy 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 couple 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 good. Good alone is nice sufficient.
Meb:
Yeah. Silver, we didn’t point out but in the present day, however I used to be making an attempt 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 can be fascinating .and notably from subsequent yr on, I feel silver on the way in which up, as soon as the dear 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:
Properly, you heard it right here. Felix, if individuals wish to observe your writing, your analysis, your consulting, the place do they go? What’s the most effective 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 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 in the present day and blissful holidays to you and all of yours.
Felix:
Joyful holidays to you too. And thanks very a lot for having me. It’s been an honor. Thanks, Meb
Meb:
Podcast listeners will submit present notes to in the present day’s dialog at mebfaber.com/podcast. Should you love the present, in the event you hate it, shoot us suggestions on the mebfabershow.com. We like to learn the evaluations. Please overview us on iTunes and subscribe the present wherever good podcasts are discovered. Thanks for listening, pals, and good investing.
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