Wednesday, June 26, 2013

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

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

Wednesday, June 12, 2013

Felix Zulauf Readies Hedge Fund With Son

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.

Wednesday, May 22, 2013

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

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.

Saturday, February 9, 2013

Felix Zulauf Recommended 7 Trades At Barron's Roundtable

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


Felix Zulauf's Yen for Japan

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.

Wednesday, January 9, 2013

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.

Saturday, December 15, 2012

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

Felix Zulauf, a market expert with a worldwide reputation, spoke in an OÖN interview about the euro crisis on the 10th of December which was later posted on 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.

Friday, October 26, 2012

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

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.

Wednesday, October 24, 2012

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

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.

Monday, October 22, 2012

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

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.