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 Ita├║ 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.