Tuesday, October 25, 2011

Felix Zulauf Spells It Out For Us

At The Big Picture, Barry Ritholtz had a conversation in his offices with hedge fund and independent wealth manager, Felix Zulauf.

Herr Zulauf's opinions are well-regarded in circles that deal with money -- (his success in managing client investments through his hedge fund is one reason why), and he has generally come down in a commonsense way against the 'New Austerity' preached by Ms. Merkel and Mr. Cameron.

Zulauf was in New York City as a contributing attendee to the annual Barron's magazine roundtable discussion. After the meeting, Zulauf went to the offices of the investment company in which Ritholtz is a partner, and made some observations Ritholtz shared.

The first one should catch everyone's attention:
• We are on an inevitable path caused by mass credit creation, excessive borrowing, and the credit crisis. The end result is inevitable, and likely unavoidable.

• The Europeans have their own credit crisis, attributable to the creation, in part, of the EU. They are following a similar path the US did [sic].

• There will be another bailout and QE3 (or more) when the situation gets worse; That can be either in market terms or in economic terms.

• Equities remain in a long term secular bear market dating back to 2000, one that is unlikely to end before 2017...

• Of all the currencies in the world, the US Dollar is the least ugly. That says less about the Greenback than it does about the Euro and Yen.

• The Eurozone was problematic since its inception. You cannot have a monetary union but not simultaneous fiscal union.

• Policy makers inevitably punish savers.

• Germany is the creditor to the rest of Europe. Given their history, their biggest concern is hyperinflation, while nations like Greece, Italy and Ireland are facing deflation.

• Watch for rising populism in response to economic turmoil. It is already happening in Europe, and will eventually come to the US.

• The political situation in Europe is unlikely to improve until the crisis is much worse. The same is likely true in the US.

• There will be an eventual repricing of all currencies.

• Greece may very well will leave the Euro, but Italy is probably to [sic] big to do so.

• Countries that can print & devalue their own currencies get to invite tourists, stimulate economy, and climb out of their morass. Tied to the Euro, [a country] simply cannot.

• There is no currency that will retain its value over the next decade except Gold. Every other currency is in a race to print and devalue, inflating away the debt.

• There is no price target on Gold, but he expects higher prices, and perhaps significantly higher prices over the next decade.

So, no dodging the bullet -- Der Untergang is, as I've said before, all happening in slow motion. No Magic Ponies for us -- only more trouble. And, it ain't over until the fat lady is much thinner.

Also, too, there seem to be a number of Our Wise Job Creator Class who feel the same way.