Felix Zulauf on the McAlvany Weekly Commentary

Felix Zulauf of Zulauf Asset Management interviewed with David McAlvany on the McAlvany Weekly Commentary the other day. He had some fantastic insights into global macroeconomic trends. We strongly recommend listening to the full recording below. However, for anyone who doesn’t have 45-50 minutes to spare, please see below for the summary:






Click here to listen to the full interview.




  • We’ve already a powerful rally in the stock market. Fund managers are essentially fully invested (because even the skeptics have to embrace the rally for fear of elevated ‘career risk’). The economy is beginning to stutter and it is clear that this is a weak recovery at best.
  • Monetary policies may have have been instrumental in driving the financial markets, but fiscal stimulus has been behind the rebound in the economy.
  • Now, fiscal policy is becoming less expansive across the globe. Consumers are spent out.
  • We are trapped and there is no way to force a solution. We have to accept slow and/or stagnating growth.
  • The difference between today and the 1930s is that the dollar used to be on a fixed exchange rate system based on the gold standard. Now, we have a pure fiat currency system where the authorities can print money to a greater extent. This may mean that valuations don’t reach the extreme lows witnessed during the 1930s.
  • The end of the 1970s bear market saw stocks trading at around 90% of book value. A similar valuation may emerge at the end of this sideways/bear market in stocks (note: book value is roughly 500 on the S&P 500).
  • Over the next two years, the fiscal authorities will probably stimulate whenever the financial markets and the economy show weakness. They may be able use a few tricks to keep things from collapsing.
  • The next few years could be very frustrating, with an S&P 500 trading in the 1000 to 1500 range.
  • 2014-2016 could be the time when the next major disaster develops.
  • One should have a defensive long-term position, and one should trade the bullish and bearish sides over the medium term.
  • One can’t be long the stock market for the long-term. People want to achieve certain rates of return (in order to retire etc.), this compels them to take more risk than they should.
  • We probably won’t witness an economy that spirals down, rather we might witness a choppy, sloppy economy with underemployment etc.
  • In the long-run, this is bad for bonds. However, they might swing between the extremes of 2008 over the next few years. This would bring about a bottoming process in yields that would eventually be the platform for higher yields in the long-term.
  • We could get close to the 2009 lows somewhere in the middle of this decade. Commodities are a China-play, and China is slowing down. It will eventually turn around though.
  • Gold is the one currency that reflects the above problems. The major commodities & emerging market themes are still intact. Emerging market stocks – which have taken a breather lately – may turn around later this year or next year.
  • QE2 was unnecessary and has become a drag on the economy.
  • The authorities are looking for a non-existent painless solution. This doesn’t exist, and the Austrian way (of purging the system of its rottenness) is untenable in a democracy. The European and British austerity programs will fail because they will lead to crises.
  • We’ll probably see higher taxes, especially for the rich. The result will be lower prosperity. Even people who manage to benefit from this period will probably see their gains expropriated through taxation etc.
  • Historically, these kinds of economic adjustments have taken place through the currency. Now, the entire west is suffering from the same illness and so the crisis doesn’t emerge immediately.
  • The sort-of fixed exchange rate system between the Renminbi and the dollar may break apart as China realizes that it’s not in their interest and that holding dollars creates immense problems for them.
  • The Euro is an untenable system that will continue to lead to depression in the periphery.
  • In the next crisis, the fiscal and monetary weapons will already be spent. So who will bail these guys out?
  • Insofar as the US Bond market accepts the fiscal and monetary looseness, everything seems fine. Once the bond market starts to take notice, the US will be in a similar situation to Greece.

See here for our collection of rare historical economic data.

Posted Jul 11, 2011