INSIGHTS: Felix Zulaf At The Barron’s Roundtable
Tuesday, January 26th, 2010Readers of the Viewpoints blog know that I don’t give quite the credence to the “expert” forecast as I do a good solid trading methodology, risk management and respect for the role of randomness. This does not mean however, that you should ignore the various scenarios that could unfold. It is always healthy to ponder the possibilities without attaching yourself to a specific outcome.
Forecasting is a very difficult thing to do, especially in such dynamic and complicated systems like the financial markets. It does seem however, that some are better than others when it comes to predicting.
Felix Zulauf is the founder of Zulauf Asset Management based in Switzerland and is well known for his appearances in Barron’s annual roundtable. Zulauf has nailed the secular bear market downturn and 2009 upturn about as well as anyone. More importantly, he has been nearly flawless in connecting the dots in the macro picture. From the de-leveraging cycle that led to the downturn to the government stimulus that led to the upturn – Zulauf has been remarkably prescient.
At the 2008 Barron’s Roundtable, Zulauf recommended investors purchase gold and short stocks due to concerns with the consumer. He remained bearish throughout the year. At the 2009 roundtable Zulauf said stocks would bottom at some point in the second quarter after making a new 2009 low. He got aggressive and said stocks would rally after that. His recommendations to purchase oil, gold and emerging markets were home runs.
Here are his recent comments from the 2010 roundtable:
“We are in the early stages of a deleveraging process, which is marked by a shift from maximizing profits to minimizing debt. It is a multiyear process. The U.S. consumer is in bad shape, and the U.K. consumer is even worse.”
“Central bankers themselves are somewhat afraid of what they have been doing. Politicians are worried about public-sector debt. Therefore, the authorities will try to step away slowly from their stimulation efforts, because this policy isn’t sustainable. That’s the risk for the markets.”
“The U.S. stock market has enough momentum to rise another 10% or so. But the authorities will start leaning the other way as they see signs of economic growth in the first two quarters, and possibly a jump in inflation. That could push the market down.”
“China is in a dangerous situation. Credit growth is the one factor that all the bubbles that burst had in common. Because China isn’t an open economy, the bubble there can probably keep inflating longer than it otherwise would have. But the Chinese can’t escape the laws of economics. If China’s bubble bursts, it would cause a second hit to the world economy, and that would be terrible.”
“In the past five years, the individual investor has been hit by two bear markets in stocks and a severe bear market in housing. He is just done. You see it in fund-flow statistics. Money is flowing into fixed-income investments that are perceived to be safe.”
“The euro is about 20% overvalued relative to the U.S. dollar. It could trade down to $1.25, from $1.45. You can see how the weaker members of the European Union are getting squeezed.”
“Governments and central banks will continue to support the economy. Short-term interest rates will stay low. Bonds aren’t attractive.”
“Previously I advised buying financials and metals. Now the financials are done, perhaps for a couple of years. Bank balance sheets aren’t repaired. It’s just camouflage. Today I like emerging markets and natural resources.”
“The real danger comes from mid-2010 through 2011. This won’t be a conventional business-cycle expansion, but a bumpy road. The economy will look like a square-root sign followed by corrugated sheet iron. The good news is the potential collapse of the system has been avoided. It was an open question for a while.”
“We’ll enter another bear-market cycle. I don’t know how low it will go. In March the market made a cyclical low in valuation, but it wasn’t a secular low. When the market makes a secular low, lack of interest in equities will be high.”





So, what makes the larger account fair better in the long run?

