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 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

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

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

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

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

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.

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

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.

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

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.

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

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.

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

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.

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

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.

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

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.

Felix Zulauf still confident in his January recommendations

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.

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

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.