Guest: Felix Zulauf is the founder and CEO of Zulauf Consulting, a boutique research and consulting firm.
Recorded: 12/14/2023 | Run-Time: 49:41
Summary:
In today’s episode, Felix shares his view of the global investment landscape from Asia to Europe to the US. He shares why the tailwinds of lower inflation may reverse and lead inflation to rise above 10%. He also touches on the state of gold, the Dollar and other currencies, and why he’s focused on the upcoming election in Taiwan.
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Links from the Episode:
1:23 – Welcome Felix to the show
2:14 – What the world looks like as 2023 winds down
3:30 – Why China is not interested in high growth
11:45 – How the Taiwanese election might affect markets
15:15 – Value disconnect between the US & the rest of the world
16:38 – Historic parallels to the market environment today
17:38 – Thoughts on fixed income and inflation
22:17 – Gold
25:20 – The US dollar and other currencies
31:21 – What will biggest surprise in 2024?
33:36 – Something Felix believes that of most his peers don’t
38:01 – Felix’s most memorable investment
Learn more about Felix : FelixZulauf.com
Transcript:
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Disclaimer: Meb Faber is the co-founder and chief investment officer at Cambria Investment Management. Due to industry regulations, he will not discuss any of Cambria’s funds on this podcast. All opinions expressed by podcast participants are solely their own opinions and do not reflect the opinion of Cambria Investment Management or its affiliates. For more information, visit cambriainvestments.com.
Meb: Hello, my friends. We got an episode today. I’ve been looking forward to this conversation for a long, long time. Excited to share our chat with well-known macro expert Felix Zulauf, founder of Zulauf Consulting. He was previously the global strategist for UBS and later ran his own asset management firm. In today’s episode, Felix shares his view of the global investment landscape from Asia to Europe to the US. He shares why the tailwinds of lower inflation may reverse and lead inflation to rise above 10%. He also touches on the state of gold, the dollar and other currencies and why he’s focused on the upcoming election in Taiwan. Please enjoy this episode with Felix Zulauf.
Felix, welcome to show.
Felix: My pleasure. Thank you for having me, Meb.
Meb: I am so excited to have you. I’ve been wanting to talk to you for a long time. Where do we find you this morning? This evening?
Felix: Yeah, it’s early evening in Switzerland, just back from my place in Florida. Change to colder weather.
Meb: Well, it’s always been a challenge for me to adjust to California during the holidays, seeing a bunch of lights and trees out on a pier in the ocean where it’s 70 degrees versus Colorado where we’d still be going to school in a foot of snow. I’m not complaining because it can be pretty nice going surfing in December and January, but Switzerland sounds like a magical time this time of year.
Felix: I’m not sure it is. We have no snow right now down in the cities, so it would be nice to have snow over Christmas time.
Meb: So we’re going to bounce all around the world this chat. Why don’t we get started with your perch from over there in Switzerland, views of the global economy, what’s going on? There’s been some macro forces, a lot of people wringing their hands this year about potential recessions. And I think everyone keeps waiting for one to come and here in the US and it just seems like it’s always in the horizon. What’s the world look like to you today as we wind down 2023?
Felix: We have three regions in very different status. We have China that is sort of weakish. It has lost its momentum. It has to digest the overhang from the real estate boom and the credit boom and that will take at least 10 years if not longer. So China will not be a locomotive to the world economy for many, many years. China is trying to manage through this and the restructure step by step, provide stimulus to support but not stimulus to growth. It’s not on the Chinese agenda to create high growth. Decent growth, three, four percent is good enough for them and in reality, three or four percent what they publish is probably one to two percent, not more than that.
Meb: And are you picking that up from kind of what they’ve been saying is the insight rather from just indicators you’re looking at? What makes you come to sort of that belief as you look to the far East?
Felix: I have said that for many years. When I saw the overhang from construction boom, real estate boom, the credit boom, once that is over, the overhang is tremendous. And think about it, the US has what? 140 million units of home in the whole us. The overhang of empty homes in China is about 100 million. So that’s a lot to digest and unfortunately they do not have a population that is growing. It is actually shrinking slightly, but it will accelerate the shrinking over time. So there is no way they can grow out of the problem. That is impossible. Therefore, they have to restructure, they have to take the write-offs and eventually they have to recapitalize the local governments, which are the big players in that and they have to recapitalize the banking industry and they have to monetize a lot of the debt. But they will only do so once the western world is at the point to do so also, because we have our problems, structural problems as well. And I think that will only come in the second half of the 20s. But we will run into a major crisis in a few years’ time, fiscal crisis, et cetera, and then we will try to stimulate out of it. And once the western world stimulates, the Chinese will do so. Recently, against the expectation of most of the experts China tighten monetary policy, which the western world didn’t understand, but they did so to protect their currency. They didn’t want their currency to go down and break down badly. They want to keep everything in balance until 2024 when we probably have a recession in the US and central bank will begin to cut rates and the pump liquidity into the system. Then they can do it also, but otherwise it would hurt them. Then we have Europe. Europe is the big loser in this whole game of rivalry and new arrangement of world order. Europe is weak, it has no army to speak of that can defend its own territory and they have no saying in the world really. Economically they have been strong, it’s a big market, but they all depend on China for exports and US for exports and US on defense and they will come out very weak. The economy is suffering particularly in those areas where they try to go green and the off fuel led energy and nuclear energy like Germany that’s very weak. They are destroying the German economy actually. Other parts are doing a little bit better. Spain is doing very well. Italy has now outperformed Germany I think for almost four years. So net I would say Europe is sort of stagnating borderline to recession. And if the US goes into recession, we will probably also go into recession and the recession will deepen somewhat. The US is the odd guy. It has been the strongest economy, provided a lot of money to the people to spend. And that fiscal support helped of course. And I think the tightening over the last year and a half or so will eventually be felt during 2024. But the consensus of a soft landing is very pronounced. And what I have learned in my career is…
