Felix Zulauf Blog

Felix Zulauf: Japan Will Be the Root Cause of the Next Global Crisis

2013-06-26T06:54:00.001-07:00

On Japan:

"I do believe that this will be the root cause of the next big global crisis whenever it breaks out, probably sometime over the next 12 to 18 months or so. First of all, I think the Japanese situation is very dangerous because Japan’s tax revenues, when you look at the numbers, they have to use almost 50% to service their government debt—their Federal government debt. So if interest rates rise further, Japan is basically bust…I think this is a very dangerous thing that the Japanese are starting and I believe it will most likely be the trigger for the next big global crisis in financial markets and the world economy."

Read Full Interview

Felix Zulauf Readies Hedge Fund With Son

2013-06-12T11:44:00.004-07:00

Felix Zulauf's second hedge fund is a father-son affair.

The industry veteran, who transformed his Zulauf Asset Management into a family office four years ago, has founded Vicenda Asset Management alongside his 30-year-old son, Roman. The two will serve as co-chief investment officers at the Zug, Switzerland-based firm, which will launch its first fund in July, Bloomberg News reports.

Vicenda will employ a global macro strategy and expects to debut with about US$50 million in assets, most of it from the new firm's principals and from former investors in ZAM. The Zulaufs plan to initially market Vicenda to family offices and high-net worth investors.

READ FULL ARTICLE HERE

FELIX ZULAUF: Stocks Remind Me Of Gold And They Could See A 'Quick And Painful Adjustment'

2013-05-22T02:02:00.003-07:00

The S&P 500 ended the week at yet another all-time record high.
Some have tried to compare the current peak to the stock market tops we've seen in 2000 and 2007.
However, many -- like Reformed Broker Josh Brown -- are quick to remind everyone that the comparisons stop with nominal price. Relative to earnings, stocks are clearly much more reasonably priced than they were before the last two market crashes.
This is not to say that there aren't things we should worry about.
"I am troubled to see that forward earnings has been stuck around its record high of $115 for the past nine weeks," wrote market guru Ed Yardeni earlier this week. "This is the measure of earnings that I believe drives the market."
Indeed, this earnings growth stagnation amid rising stock prices have caused valuations to become less attractive.
In a piece for Itaú BBA titled "Developing Euphoria," hedge fund manager Felix Zulauf raises similar concerns. Interestingly, he draws comparisons between the stock market and the gold market. Here's an excerpt (emphasis added):

The problem with currently rising equity markets is not rising prices but the lack of fundamental improvement. Stock prices are driven primarily by this lack of alternative investment opportunities and the growing belief that central banks’ money printing can and will generate attractive investment returns for equity investors for a long time despite the lack of supporting fundamentals in the real economy. That is a risky assumption, but as long as rising trends remain intact, nobody worries. In fact, the momentum of the leading equity market indices (Japan, the U.S., Germany and Switzerland to name some) is very powerful and has the potential to carry further, potentially even into a buying climax. Similarities to the gold price in spring 2011 come to mind. At that time, the conviction that gold could only go one way because inflation will eventually rise was as extreme as is now the case for equities.

Once equity markets discover the emperor has no clothes, they could face a quick and painful adjustment to bring markets in line again with fundamentals. For the gold market it was when investors realized there was no rise in CPI inflation or the assumption that systemic risks are declining. It is true that equities look attractive relative to fixed-income alternatives from a valuation point of view, when depressed fixed-income yields are compared to dividend yields or earnings yields (reciprocal of P/E ratios). Those comparisons are all fine as long as economies do not fall back into a recession and earnings stay at least stable. As investors are not expecting a recession, they still believe equities are by far the best place to be, and they act accordingly. That’s why we might see an end to this cycle with a bang (buying climax) and not a whimper (conventional broadening cycle top).

Simply put, gold exploded higher amid fears of liquidity-driven rampant inflation. In a similar sense, stocks are currently in rally mode on expectations that an improving economy will eventually translate into earnings growth.
With inflation at bay, the world watched the gold market meltdown this year.
In his piece, Zulauf also offers his take on austerity, debt, bonds, gold, and Japan. He also provides a lengthy perspective on currencies.

Felix Zulauf Recommended 7 Trades At Barron's Roundtable

2013-02-09T12:26:00.002-08:00

Swiss hedge fund manager Felix Zulauf participated in Barron's annual Roundtable, and he came with a couple of trades.
Three of those trades involved Japan.
"The moment has arrived where the Bank of Japan needs to bridge the gap and buy more JGBs with newly printed yen," he said. "In other words, the supply of yen will increase dramatically. Japanese inflation will be pushed from slightly below zero to 2%, and the yen will be weakened. This is a major change for Japan, because the yen has been one of the world's strongest currencies for a long time, right behind the Swiss franc."
Here are his trades:

U.S. dollar vs. Japanese yen
USD/JPY Call Option Strike 95 Exp. 12/31/2014
WisdomTree Japan Hedged Equity Fund (DXJ)
iSharesMSCIBrazil Index Fund (EWZ)
iShares FTSE China 25 Index Fund (FXI)
iShares MSCI Emerg Mkts Index Fund (EEM)
Gold

"The last time I discussed Japanese stocks was at the 1990 Roundtable, when Paul Tudor Jones and I recommended selling the Nikkei at 40,000," he said. "We said it would be cut in half. The Nikkei hit a low of 7,000 in 2009 and since then has traded in a range of 7,000 to 11,000."
Maybe he'll be right again.
For Zulauf's commentary on each of his trades, read the transcript at Barrons.com.

Sources: BusinessInsider.com, Barrons.com.

Felix Zulauf's Yen for Japan

2013-02-09T12:22:00.001-08:00

The hedge fund manager explains to Barron's Online why he expects Japanese stocks to climb - and why investors need to tread carefully to avoid getting tripped up by currency devaluation.

2013-01-09T13:00:00.000-08:00

The Swiss Felix Zulauf is among the best macro thinkers of our time a good feel for the markets and the general landscape for the future.

In the end of 2012, Zulauf was bearish on China and then in September called a bottom. Hang Sand and Shanghai Composite have rallied ever since. When asked about his current views on China, Zulauf said that China’s new government is trying to maintain a 7-8 per cent growth and it is taking steps so as to ensure this. Moreover, he commented that the country will probably relax monetary policy and increase public spending. He commented said that this will not be like 2008 because China is still suffering from the side effects, saying that its level of growth is actually between 3 and 4 per cent, which means that there is 20-30 per cent upside in Chinese equities.

Felix Zulauf has also shared his views on Europe. Firstly, he said that the prevailing goal of Europe is to keep the euro zone together but the austerity policies could probably be not sustainable. In his view, Mario Monti has lost his support because of the Italian parliaments’ withdrawal of support and that Angela Merkel, who is facing elections, will probably agree on diluting austerity programs. What is more, Zulauf does not see growth in the peripheral countries and he thinks that Germany could be forced to mutualize debt on a small scale. Felix Zulauf also commented that the European Central Bank will be the one to deal with financing rotten governments and rotten institutions.

All in all, Felix Zulauf believes that the euro may see 1.40 in the next quarter before seeing 1.00 in 2014 when yields rise on the peripheral countries’ sovereign debt and markets see much more trouble.

Euro crisis: "So the EU is an anti-peace project"

2012-12-15T16:07:00.002-08:00

Felix Zulauf, a market expert with a worldwide reputation, spoke in an OÖN interview about the euro crisis on the 10^th of December which was later posted on http://www.nachrichten.at. Here is the full interview with Felix Zulauf:

The Swiss Felix Zulauf is one of the world's most prestigious asset managers and market experts. He has built one of the largest hedge funds in Europe. Meanwhile, the 62-year-old businessman sold his company, works as a consultant and manages its own assets. On Monday evening he was a guest of the Financial Market Forum of Upper Bank and OÖNachrichten. In OÖN exclusive interview, he did not mince his words and calls for a "back to national currencies" in Europe.

OÖNachrichten: Half an year ago you said that the euro would die and the entire financial architecture would disintegrate. Now the euro is strong and trades at around $1.30, the financial markets have calmed down. So, is the worst not over yet?

Felix Zulauf: No. There are EURO-contract rules and statutes of the European Central Bank. The policy and the ECB break all the rules and lie to the people of Europe. Central banks are still disciplining factors as the gold standard. Today more and more euros are printed. Everything just because politicians want to keep together a building called the euro area, where people have started to build the roof instead of starting it up from the ground.

OÖNachrichten: But is the euro is not worth saving?

Felix Zulauf: The conditions for a European currency area were and still are not given today. If this project is far from subordinates, then the euro will fall as a structural weak currency. An Italianisation of the euro is under way. In addition, the debt will be communitized. What do you want for European citizens?

OÖNachrichten: One could follow the retiring Premier Mario Monti again or even Silvio Berlusconi.

Felix Zulauf: Getting the euro with forcing the governments to Brussels austerity programs that lead to the periphery to the economic depression. The population is no longer willing to support that. Monti was thrown in the towel due to lack of support. Last month, the retail sector in Italy has dropped by 13 percent, which says it all.

OÖNachrichten: What alternatives do you suggest?

Felix Zulauf: The best course would be a return to national currencies. The outcome would be that the accession criteria would be clearly defined and there would be agreed penalties for failure. Over a period of at least one cycle of these criteria of each candidate would have to be met to qualify for the European currency. Thus, the first structural adjustment of economies would be achieved at the end of joining a monetary union. We have not bridled the horse from the tail.

The politicians want to admit it now; the error is in the construction of the euro. They fear the high costs of a breakup. You do not know what it will cost, if they continue forever. From my perspective, those costs will be much higher.

OÖNachrichten: You push the responsibility only on politics. And yet the actors such as hedge funds exacerbate the financial markets.

Felix Zulauf: It is exaggerated that hedge funds attack and deny. Ultimately matters are the economic fundamentals. With cheap money from banks in the creditor countries such as Spain and an unbelievable real estate bubble in 2008. Since then there everything has collapsed, and the money would naturally arise capital flows. This has nothing to do with hedge funds.

OÖNachrichten: ECB chief Mario Draghi, an Italian, has said that he would do everything he could to defend the euro. Does that sound dangerous to you?

Felix Zulauf: Why have the German central banker Axel Weber and Juergen Stark retired from the ECB? They didn’t want to support this development anymore, because they know exactly where it will lead in the long term. Only Italians can make such a policy. If we continue to fund ailing financial Insitute and States on the printing presses, it will have a high price in the long term. The ECB will certainly decrease even as the U.S. central bank interest rates to zero. I expect that the euro zone economy will shrink in 2013 by over two percent. The recession will last well into the year 2014 and more.

OÖNachrichten: Given your gloomy forecasts: how can people earn more money, what do you recommend to people’s shares, with which one is performing well this year?

Felix Zulauf: Over the past two years, government bonds of strong countries like Germany have been outperforming equities. This bull market has missed almost all. I see much more potential for gold because the pursued monetary policy weakens the value of paper money.

OÖNachrichten: How do you suggest they invest their assets?

Felix Zulauf: I have invested much in Swiss francs and partly in U.S. dollars. I have accumulated gold at 300 to 350 dollars an ounce and I keep it. I have shortened my investment in government bonds due to the interest rates of this summer.

OÖNachrichten: How can financial markets, banks and investment advisers regain confidence after all the turmoil and scandals of recent years?

Felix Zulauf: Sound economic policies, including monetary policy which is a precondition for a correct behavior of all in our society. If they fell apart, as it has been the case for fiscal and monetary policy for decades, then everything else will fall apart. Well, and the company then drifts further and further apart

OÖNachrichten: The debt is high but also because of the bailouts of recent years for the private sector.

Felix Zulauf: Well, yes. We had all ailing banks nationalized in the last financial crisis, then reorganized and after a few years returned to the market. Instead, we commit a sin after another.

OÖNachrichten: How long the Swiss National Bank (SNB) will be able to maintain the minimum rate of 1.20 francs to the euro? You have already speculated that this brand of currency market intervention cannot be maintained?

Felix Zulauf: It was right to fix the exchange rate of the National Bank, otherwise the country's economy would have slumped significantly. The Swiss franc is overvalued about 15 per cent even today. But the defense, through intervention cannot be sustained forever. At the next weakness of the euro, which I expect from the summer of 2013, it is likely that the inflow of interventionist measures will be restricted.

NB: The interview with Felix Zulauf has been translated from German and there could be some inaccuracies.

U.S. debt will balloon to $25 trillion within four years, believes Felix Zulauf

2012-10-26T18:37:00.000-07:00

Swiss investor Felix Zulauf shared his opinion that the path ahead of USA financial stabilization seems very tough. Mr. Zulauf argued that the U.S. government will find further fiscal stimulus unaffordable since we have seen the debt of the States has risen from $10 trillion to $16 trillion and $25 trillion is in sight within four years at this pace.

Zulauf believes that in order to find a cure for the current situation a fiscal restraint is needed, even if at a short-term cost in growth, and added that "Obama has no plan" and that Republican vice presidential candidate Paul Ryan’s plan is "implausible." Minor fixes are the likeliest case, resulting in economic stagnation. Zulauf’s only good news was that households appear to have completed deleveraging.

The Swiss financial guru fears competitive devaluations, pushed initially by the United States. He foresees current firmness in the euro to the U.S. dollar ending soon and parity or even a discount to the U.S. dollar as quite probable, for political reasons.

As with equities, bonds are subject to a downward cycle, hyperinflation is possible in deeply troubled countries, and central banks in other countries would welcome modest inflation, which would be likelier in asset prices than consumer prices. He added that these bankers sold gold at the low point, questioning why anyone would trust them to manage the process competently.

Felix Zulauf: Eurozone will be the shortest currency union in history

2012-10-24T11:25:00.000-07:00

The president of Zulauf Asset Management AG - Felix Zulauf expressed his opinion that the Eurozone is oh its way to become the shortest currency union in history. Swiss hedge fund manager believes that the only allternative to breakup is only a federal union. Zulauf thinks that additional temporary measures risk aggravating social conditions, with local rioting leading to broader civil unrest.

Austerity measures brought by some of the European governments have only produced an imminent crisis. In Zulauf's view, the crisis is imminent and does not require a specific event. He believes that after six to nine months, the markets may suddenly wake up and react powerfully to some seemingly minor event.

Zulauf, during his recent speech in Prague, added that investment options in the intermediate term are grim. While the equity markets may thrive in the coming year or two, the seven-year equity cycle will turn in 2015 or so and "buy and hold" strategies will turn out to be painful for those with a three- to four-year horizon. Although the coming bust will be bad, Zulauf thinks it will not be as serious as the last.

Zulauf added, that Central banks sold gold at the low point, so they should not be trusted to manage inflation. The only hope, he said, was a supply-side focus on increasing productivity and lowering economic barriers could help in principle. But governments are already "heading in the other direction, Zulauf also said.

Felix Zulauf: China actual growth is at a 3% rate

2012-10-22T08:03:00.001-07:00

Investment guru Felix Zulauf expressed his opinion that most of the investors are overestimating China's growth rates and in the meantime are underestimating the problems in the Asian country.

The president of Zulauf Asset Management AG made his statement during the Fifth Annual European Investment Conference and added that the slowing growth in China is a foretoken to a global economic crisis that will strike every single region.

Swiss hedge fund manager Felix Zulauf indicated that "excessive" booms always lead to a bust, and China’s will be no exception. HSpeaking at an investor conference sponsored by the CFA Institute in Prague, Zulauf said China is actually growing at a 3 percent rate than official reports of nearly triple that level. Earkier this month a 7.4 percent rate was reported by the Chinese government.

In his view, market commentators underestimate the problems in China. Zulauf said that while China's new leadership may implement a "timid stimulus", it won't have much effect, and that a "credit boom in reverse" seems imminent. Like any aftermath of an "excessive" boom, China will end up going bust. Consequently, public growth forecasts for Australia, Latin America and other natural resource countries are too high.

Felix Zulauf with another bearish forecast for the future

2012-10-01T02:34:00.001-07:00

One of the most successful hedge fund managers Felix Zulauf has come up with another pessimistic prediction for the future.

According to Zulauf, the thirty-year bond bull market has ended and also predicting that the price of gold will surge in the near future. Moreover, the hedge fund manager himself is of the opinion that one has to sell half of what he owns along with selling the other half in the near future at the latest.

The Swiss investor thinks that bonds are overvalued and that the real return is negative. Furthermore, Zulauf is convinced that stocks will collapse in the next 2 or 3 years, adding that the investment world will see 1k in the S&P, which is more than 30 per cent decline.

In a recent interview, Zulauf said that they were in a stage of the super cycle and everything is accelerating. He explained that the fiat currency is in the final stage and that it always collapses in the end.

Felix Zulauf is the opinion that the European Central Bank will do everything in its power to prevent a potential collapse of the system. He is convinced that the ECB will finance everything including bankrupt governments and banks to every bankrupt entity which is crucial for the system.

Felix Zulauf interview part 6: The euro will not survive

2012-09-07T10:16:00.001-07:00

The financial market expert Felix Zulauf expressed his opinion in an interview for Wirtschaftswoche Online that the Euro has no chance to survive and more and more people are investing their money in German banks. According to Mr. Zulauf, the longer Euro exists, the higher will be losses when it breaks appart.

The euro has absolutely no chance?

Realistically, it will not survive. It would have chance only at full fiscal union, that is common with household policies. That would be possible only in a political union. At this moment the European nations are not ready. Therefore, the politics will continue to make compromises, and that is why we remain in a permanent crisis several years.

What is happening with the banks in the EU now?

The citizens suspect in the periphery, that their countries will soon be exiting from the euro. To guard against future devaluations of their new currency, they move their money to a bank in Germany. These are not just private savings, but also businesses. The capital flows from the periphery to the center. So there is too much capital in Germany. In the periphery, however, there is lack of capital, as banks lose deposits regularly. The banks in the periphery may award less credit and buy only limited own government securities, even if the ECB gives them lots of money.

And the Bundesbank in its balance sheet piling more and more claims against the banks of the periphery?

Yes, and that is fatal. The individual central banks may finance the capital outflows to other countries due to unlimited money creation, which are then available in the case of inflows to Germany at the Bundesbank as claims against the euro system, or those national central banks in the books. You can solve this if Bundesbank or the ECB, and the German banks say: Send the money back! But then the euro would be done at once.

So Germany is trapped?

Exactly, the Bundesbank sits there and can do nothing. Once the system falls apart, will fail these requirements. Then, the Bundesbank is broke and needs of the state, that is by tax dollars, are capitalized again.

So, the longer euro exists, the higher will be its funeral expenses?

That's it. If the euro splits now the cost for the Germany will be close to one billion euros. And over time it becomes more and more. The rush to German government bonds will continue anyway. The crash rate of return has accelerated recently.

To be continued...

Felix Zulauf interview part 5: The euro divides Europe, not unite it

2012-09-02T08:36:00.001-07:00

The financial market expert Felix Zulauf expressed his opinion in an interview for Wirtschaftswoche Online that European integration is not dependent on the euro. The euro is not an integration project, but it divides Europe, thinks Mr. Zulauf.

Would it not be better if you do not let the people vote directly on this issue, as it would be in Switzerland?

The facts came to light, but that does was not due to the politics. The politics assumesthat the euro is an integration project. But European integration is not dependent on the euro. The euro is not an integration project, but it divides Europe. Originally the idea was pursued to eliminate the single currency, the currency fluctuations in the European Economic Area.

But because of the different competitiveness, we now have hard impact in the real economy. If you ask Spaniards, Greeks, Italians and Portuguese, you will come very soon to the conclusion that it was better than the exchange rate fluctuated and the economy is still fairly reliable, organized and developed.

And the euro was presented to the citizens with the fact that they would not need to constantly move money abroad?

I thought that was not bad. Of course it would be nice if we had a single currency that would work. But the euro was just a project at the wrong time, because the necessary preconditions were missing in the real economy. The Bundesbank at the time was absolutely right. It was stated that the European economies would have to first approach each other for about two to three decades. If this process was succesful then it would eventually end up being crowned by the Monetary Union.

Why has not it been done?

The French have prevailed. They thought that after the currency union the structural adjustments will be done automatically. And the majority of economists have supported it. But there was a minority that has addressed the concerns clear. But their representatives were always ridiculed and portrayed as anti-European. That was and is still wrong.

Will the European Central Bank (ECB) allow the end of the €?

The ECB will mount up again and again new guns. The LTRO loans to the banks, it has opened a Pandora's box. If they did not do that, Spain and Italy would have experienced a banking collapse, their economies would be broken completely. This step is followed by others, the ECB itself, however, do not even know how much they inflate their balance sheets in the coming years, and it must be done if it wants to keep the system together.

The ECB said it wanted to prevent a credit crunch LTRO in southern Europe.

This is not a credit crunch, this is a bankruptcy of the banking system and the governments of several countries. The failed banks have to finance the bankrupt states and to get the financing at favorable conditions provided by the ECB.

Would it not be cheaper for the taxpayer, if the ECB would directly fund the States at a rate of one percent, that is, without the expensive detour on the banks?

Sure, at first glance, it would be cheaper. But since there are legal hurdles, so we choose the detour. This monetary policy is of course very unhealthy. From the history of Germany to Zimbabwe, we know that after an average of five years in which funds a central bank than a third of the state budget, will be a currency reform. In the U.S. and the UK, we are already above that threshold, and also in Europe and Japan will be exceeded.

Did the ECB via LTRO also facilitate large foreign banks to withdraw from Spain and Italy?

That was not her idea. I do believe, however, not the far-sighted among the leaders are unhappy about it, when the European banking system nationalized, so keep as Spanish banks especially Spanish government bonds. A return to national currencies could thus run with less pain.

To be continued...

Felix Zulauf interview part 4: Weaker Germany would be a disaster for all of EU

2012-08-29T21:16:00.002-07:00

The financial market expert Felix Zulauf expressed his opinion in a recent interview for Wirtschaftswoche Online that a much weaker Germany would be a disaster for all of Europe as the continent fall in global competition and significantly reduces the general welfare.

Can the imbalances in the euro zone be eliminated by more inflation in Germany?

Theoretically, this would be feasible. If Germany raises unit labor costs by 20 percent to 30 percent, that will lead to a massive increase in wages, the other countries will become more competitive and could hope for more exports to Germany. But the debt problem will not be resolved. That will happen if German wage-earners, who has so far maintained a degree of frugality consume, suddenly go wild. But that does not comply with the German mentality. Germany should not go that route.

But Europe sees it differently...

Normally, each person is oriented to the major service providers and trying to emulate the successful ones. The fact that Germany is now based to the back in the rankings, is an example of wrong thinking. A much weaker Germany would be a disaster for all of Europe as the continent fall in global competition and significantly reduces the general welfare.

How would you explain, that the Bundesbank suddenly states, that it would not be so bad if the inflation in Germany was slightly higher than in the rest of the euro zone?

These are political statements that are not really serious. The Bundesbank wants to be able to reject the allegations that are coming, if the Euro breaks. You can then claim that they had basically been open for some adjustments.

Will there be s parliamentary revolt against European Stability Mechanism (ESM)?

No, I do not think so. The SPD is also totally deluded. They understand the situation and carry only the euro as a dogma in front of them. And when Mrs. Merkel's party sat right next to the SPD, of course, the opposition was missing in the Bundestag. The FDP has some people who could do this. But this is still a very young team. They do not have that weight. This is a shame and not without its dangers. I assume that the ESM comes through in the Bundestag.

Are you as sure as President Joachim Gauck that the ESM is also before the Federal Constitutional Served?

Perhaps criticized the Constitutional Court of the ESM, if complaints were received. Basically, it is yet so that today the top management of large-scale industry, the high politics and the judiciary are high in league closely. We will arrange themselves. There is not very democratic decision. Although we call democracy, but democracy is in most industrialized countries in decline. And the voters feel that their interests will be ruled on by.

Gauck said that the parachutes would be accepted by the German population.

The majority of the population do not even know what it is. You may not understand the full complexity of the President and the consequences thereof.

To be continued...

Felix Zulauf interview part 3: All the major cornerstones of the Basic Agreement on the European Monetary Union have been broken

2012-08-26T02:49:00.003-07:00

The financial market expert Felix Zulauf expressed his opinion in an interview for Wirtschaftswoche Online that the only chance Greece to be back on its feet is leaving the European Union ant to abandon Euro currency. Zulauf added that after one year of chaos, Greece will stabilize through its agriculture and tourism.

What will happen if individual countries are forced to resign?

They will not be forced, but the pressure will keep increasing due to the economic depression. The people will turn against the euro and demand the resignation, in Spain and elsewhere.

Does EU wants to keep Greece tied to the the euro?

The people still assume that Greece can not be kicked out of the euro zone and the others will have to pay more and more. But this belief is naive, that will not happen. Even if other states adopt them some austerity measures or promote investment - that will not help the Greek economy to get back on its feet. Greece will emerge, that's just a matter of time.

How it would go on then?

The new currency would depreciate about 50 percent to 70 percent against the euro. In the first year they will have chaos, of course. The Greek financial system would be totally bankrupt, banks and insurance companies would have to be re-equipped with the state capital. There will be capital controls. After about a year I expect to win as tourism and agriculture to Italy, Spain and Portugal, market share and the Greek economy is recovering appropriately.

At the expense of the other euro countries?

For them, it will be even worse. But when the first leaves it will be followed by others.

Transport spending cuts and tax increases, are the peripheral countries in a direct way to the Third World, if they stick to the €?

You may say that. That's a depression. The extent of which the situation in Greece is comparable to the Great Depression in America. Only America had at that time the New Deal, large stimulus packages. On the other hand Greece gets tough austerity measures from Brussels.

The new French President wants a new deal. In addition to the Fiscal Pact is to be laced Growth Pact. Households consolidate and further contribute to growth - how does this without the additional expense?

This is wishful thinking, it does not work. If you want more growth, you can either hang up in the old Keynesian-style stimulus packages, such as investments in infrastructure. But this still drives the national debt higher. Or you can initiate structural reforms in order to be efficient, for instance through liberalization and privatization. This results in a first phase, however, mean that the economy is weakened.

Europe tries to do both. The Fiscal Pact is committed to saving ...

Will be ... but probably not ratified by all countries. Before the growth pact comes at all, the fiscal pact in fact will have died. There are signed agreements, which are to be broken again soon. All the major cornerstones of the Basic Agreement on the European Monetary Union have indeed been broken.

To be continued...

Felix Zulauf interview part 2: Greece is heading to the exit, Spain might withdraw from the euro zone in 2013

2012-08-23T09:20:00.000-07:00

The financial market expert Felix Zulauf expressed his opinion in an interview for Wirtschaftswoche Online that Greece is not the only problem in the EU, but merely the beginning of the real problems. He expects the southern-European country to be the first to leave the Union, followed by Portugal, Ireland and Spain.

Is Greece heading back into bankruptcy?

The mood has changed. And I'm assuming that Greece will become insolvent for the second time later this year.

Are we just beginning a phase of state bankruptcies and exits from the monetary union?

Yes, this process is far from over. Greece alone would still not be a problem for Europe and the euro zone, but it is only the beginning of a problem that is expanding massively below the surface. Greece will probably be the first country to leave the euro zone. The next year Greece will be followed by other countries, probably Portugal and Ireland at first, but then comes Spain. The question is whether the euro zone is ready to bury the project € and go back to national currencies.

Do you think that this is possible?

I suspect that will not happen. The policy will depend on such a project, no matter what the cost is. It has brought untold suffering to Europe. The crisis is almost like a war. It destroys economic structures, businesses and livelihoods. Here is a drama being played out. Maybe Italy is still in a similar predicament as Spain, possibly even France. France is, if there the reform is denied, even at a greater risk than Italy.

Why the huge power of the Spanish property market has been ignored for so long?

The manager's elite acts now in very short terms. Board members are under pressure to present their shareholders profits. I once discussed with the CEO of a major European bank, whether a bank would not have to slow down their business as soon as problems arise on the horizon, for example, a housing crisis. The bank chief said that if he brakes too soon, he will lose his seat.

And if he braked too late?

Then the bank loses money and wealth and he also may lose his seat. So it's a matter of timing. Instead of slowing down in the allocation of real estate loans, as the big banks Santander and BBVA are doing since 2007, they have only been on the gas. The two big banks have more international experience because they have a large Latin American business and are also active in the U.S. They have recognized the dangers in the past. The local banks and provincial banks do not have this experience.

The government is now forcing them to terminate their loans and sell real estate.

This initiates the second phase of the real estate debacle. If sold at any price, property prices in Spain will fall further from current levels by 40 percent to 50 percent. This downward spiral carries the entire Spanish banking system into bankruptcy. This can only lead to the nationalization of the big Spanish banks.

What this meant for the Spanish public finances?

The indebtedness of the Spanish state will go up massively. The state must spend probably at least 150 billion euros for the banks. The debt ratio then quickly jumps to well over 100 percent of the economy. This is no longer affordable. The Pension Fund of the Spanish state employees holding 90 percent of its assets in Spanish government bonds. The pensions of state employees could therefore no longer be served, as originally promised. Spain is in a similar plight as Greece, only the much larger dimension. I expect that Spain will withdraw from the euro zone in 2013.

To be continued...

Felix Zulauf interview part 1: All important banks have to be nationalized immediately

2012-08-21T05:56:00.001-07:00

The financial market expert Felix Zulauf expressed his opinion in an interview for Wirtschaftswoche Online that the only way to prevent the global banking system from collapsing is the nationalization. Greece will not be the only country that will have to give up because of the economic depression, says Zulauf.

Mr. Zulauf, which large European banks will soon run out of air?

Felix Zulauf: In principle, several banks in Europe are already bankrupt, probably even some in the U.S. But governments are not a big bank went bankrupt.

Why not?

The failure of a large bank would lead to another failures since the first bank has been purchased credits or derivatives of the others. It would therefore be a chain reaction and ultimately come to the collapse of the financial system itself. In order to prevent that from happening, over the next two to three years more banks will be nationalized, in the peripheral countries, but also beyond.

Large nationalization will be cheaper in three to four years?

That is right. During the crisis, then all important banks would have to be nationalized immediately - at low prices. Then you would have to suspend bonus payments and maintaining and the bank moves to a stronger capital bases. In its current form, many banks will not survive.

Why not?

You have too much debt, and not just the in banks alone. In recent decades, we have all built up debts in the public and private sectors, to the extent that the system can no longer function. We can not grow anymore because we have too much debt on our neck.

The U.S. bank JP Morgan has set from derivative transactions two billion dollars in the sand. Is it conceivable that this loss is distorting the banking system?

Two billion dollars is a no trouble for JP Morgan. The loss was put away relatively quickly. But it could also be ten times more. The problem is different: there are only five banks in America that have about 95 percent of outstanding U.S. derivatives on their books. JP Morgan is one of them. In Europe, the business is spread a little wider. Global moves of the derivatives market are somewhere 400-700 trillion. These are enormous sums. There is always the risk that a bank is not properly secured or has simply speculated. A total collapse would be prevented only by nationalization. I see no other way out.

The regulators require banks to hedge risky business in the future with more capital. Banks can implement higher capital requirements at all?

It has given them since quite a long time. The tougher capital requirements under the Basel III Agreement only take effect from 2019th

Some countries want to strengthen the legislation and push for an earlier implementation?

In principle, to rationalize the financial system, we need better capitalized banks. At present, however, weaken the capital rules the financial system and heavily damaging the economy. If maturing loans are no longer updated, because the banks' balance sheets must shrink due to lack of equity, economic activity is bound to decrease. The problem extends into the emerging markets. There would be affected, especially the countries in Central and Eastern Europe.

To be continued...

No bright future, hold on to the cash and gold, recommends Felix Zulauf

2012-06-19T09:27:00.000-07:00

There are dark times awaiting us in the near future, according to Felix Zulauf. Riots in the streets, banks withholding your money, governments forbidding you from moving your money, these are some of the things that we can expect to come over us, predicted this world-renowned Swiss money manager.

If that looks too dark for you, you will need to reconsider. According to Felix Zulauf, not only is it possible, it is highly probable. If these ideas were being put forward by anybody else, it would be easy to dismiss them as the fear mongering rantings of a perma-bear. However Felix Zulauf is anything but that. He is the former head of institutional portfolio management at the Union Bank of Switzerland (UBS) and a twenty year contributor to the Barrons Round table.

He called for the market to peak in late March of this year, and he called the March 2009 low. Clearly Felix Zulauf is no perma-bear, as he has demonstrated his ability to recognize when it's time to buy the market as well as when it's time to sell.

What Zulauf is suggesting is that, as things become worse and worse, the pool of available "good collateral" -- that is, financial instruments, such as bonds and stocks, where institutions can park their money in relative safety -- is going to shrink. In short, it’s time for cash and gold, Zulauf said.

Here you can read Felix Zulauf's Biography

Felix W. Zulauf is the owner and president of Zulauf Asset Management - Switzerland-based hedge fund that offers global advisory services. Zulauf is an independent investment manager seeking absolute return.

Felix Zulauf still confident in his January recommendations

2012-06-18T09:02:00.000-07:00

As the events are piling up in Europe, the following says will drive the markets for the next few months. The Swiss investment manager Felix Zulauf is not worried of the elections that are coming around the world and remains confident in the prognosis that he made in the beginning of the year.

He confirmed that he is sticking with his January recommendations. In the short-term, equity and commodity markets are making a low. They are oversold. The euro zone will come up with new quick fixes later this month and markets will attempt to rally. He added that he sees a cyclical bear market continuing well into 2013.

And if the ECB doesn’t step up will the US Federal Reserve provide funding or buy directly Spanish debt on to its balance sheet.

Felix Zulauf predicts dark times for the Euro and nationalization of the credit system

2012-06-12T02:39:00.000-07:00

The Swiss investment manager Felix Zulauf once again shared his extremely dark forecast for the future of the world as the owner and president of Zulauf Asset Management recently participated in Barron's Roundtable. Mr. Zulauf commented that the euro is a misconstruction. He reminded his January expectations, when he waited for the disintegration of this currency to begin in the second half of this year.

If that happens, it should lead the world into financial and economic chaos. The Swiss investment manager's two major themes into 2013 are euro disintegration and China weakness, due to the bursting of a real-estate boom.

Felix Zulauf considers the credit markets to be an explosive cocktail. The tower of debt is compounded by the gigantic over-the-counter derivatives market. In the past 10 years the notional value of derivatives worldwide has grown from $100 trillion to almost $800 trillion. In his opinion there is a chance that the governments could intervene and the potential exists for a broad-based nationalization of the credit system, capital controls and dramatic restrictions on financial markets. He even goes further with the assumption that some markets might even be closed for awhile.

Mr. Zulauf believe that we are living in interesting times and currently we are witnessing the biggest financial-market manipulation of all time. The authorities have intervened more and more, and thereby created this monster. They might change the rules when the game goes against their own interests.

As his opinion goes, Felix Zulauf likes cash, recommends shorting emerging markets (EEM), and would buy gold but only if it falls to $1,500.