Best of the Week
Most Popular
1. Gold vs Cash in a Financial Crisis - Richard_Mills
2.Current Stock Market Rally Similarities To 1999 - Chris_Vermeulen
3.America See You On The Dark Side Of The Moon - Part2 - James_Quinn
4.Stock Market Trend Forecast Outlook for 2020 - Nadeem_Walayat
5.Who Said Stock Market Traders and Investor are Emotional Right Now? - Chris_Vermeulen
6.Gold Upswing and Lessons from Gold Tops - P_Radomski_CFA
7.Economic Tribulation is Coming, and Here is Why - Michael_Pento
8.What to Expect in Our Next Recession/Depression? - Raymond_Matison
9.The Fed Celebrates While Americans Drown in Financial Despair - John_Mauldin
10.Hi-yo Silver Away! - Richard_Mills
Last 7 days
UK Coronavirus Infections and Deaths Projections Trend Forecast - Video - 28th Mar 20
The Great Coronavirus Depression - Things Are Going to Change. Here’s What We Should Do - 28th Mar 20
One of the Biggest Stock Market Short Covering Rallies in History May Be Imminent - 28th Mar 20
The Fed, the Coronavirus and Investing - 28th Mar 20
Women’s Fashion Trends in the UK this 2020 - 28th Mar 20
The Last Minsky Financial Snowflake Has Fallen – What Now? - 28th Mar 20
UK Coronavirus Infections and Deaths Projections Trend Forecast Into End April 2020 - 28th Mar 20
DJIA Coronavirus Stock Market Technical Trend Analysis - 27th Mar 20
US and UK Case Fatality Rate Forecast for End April 2020 - 27th Mar 20
US Stock Market Upswing Meets Employment Data - 27th Mar 20
Will the Fed Going Nuclear Help the Economy and Gold? - 27th Mar 20
What you need to know about the impact of inflation - 27th Mar 20
CoronaVirus Herd Immunity, Flattening the Curve and Case Fatality Rate Analysis - 27th Mar 20
NHS Hospitals Before Coronavirus Tsunami Hits (Sheffield), STAY INDOORS FINAL WARNING! - 27th Mar 20
CoronaVirus Curve, Stock Market Crash, and Mortgage Massacre - 27th Mar 20
Finding an Expert Car Accident Lawyer - 27th Mar 20
We Are Facing a Depression, Not a Recession - 26th Mar 20
US Housing Real Estate Market Concern - 26th Mar 20
Covid-19 Pandemic Affecting Bitcoin - 26th Mar 20
Italy Coronavirus Case Fataility Rate and Infections Trend Analysis - 26th Mar 20
Why Is Online Gambling Becoming More Popular? - 26th Mar 20
Dark Pools of Capital Profiting from Coronavirus Stock Markets CRASH! - 26th Mar 20
CoronaVirus Herd Immunity and Flattening the Curve - 25th Mar 20
Coronavirus Lesson #1 for Investors: Beware Predictions of Stock Market Bottoms - 25th Mar 20
CoronaVirus Stock Market Trend Implications - 25th Mar 20
Pandemonium in Precious Metals Market as Fear Gives Way to Command Economy - 25th Mar 20
Pandemics and Gold - 25th Mar 20
UK Coronavirus Hotspots - Cities with Highest Risks of Getting Infected - 25th Mar 20
WARNING US Coronavirus Infections and Deaths Going Ballistic! - 24th Mar 20
Coronavirus Crisis - Weeks Where Decades Happen - 24th Mar 20
Industry Trends: Online Casinos & Online Slots Game Market Analysis - 24th Mar 20
Five Amazingly High-Tech Products Just on the Market that You Should Check Out - 24th Mar 20
UK Coronavirus WARNING - Infections Trend Trajectory Worse than Italy - 24th Mar 20
Rick Rule: 'A Different Phrase for Stocks Bear Market Is Sale' - 24th Mar 20
Stock Market Minor Cycle Bounce - 24th Mar 20
Gold’s century - While stocks dominated headlines, gold quietly performed - 24th Mar 20
Big Tech Is Now On The Offensive Against The Coronavirus - 24th Mar 20
Socialism at Its Finest after Fed’s Bazooka Fails - 24th Mar 20
Dark Pools of Capital Profiting from Coronavirus Stock and Financial Markets CRASH! - 23rd Mar 20
Will Trump’s Free Cash Help the Economy and Gold Market? - 23rd Mar 20
Coronavirus Clarifies Priorities - 23rd Mar 20
Could the Coronavirus Cause the Next ‘Arab Spring’? - 23rd Mar 20
Concerned About The US Real Estate Market? Us Too! - 23rd Mar 20
Gold Stocks Peak Bleak? - 22nd Mar 20
UK Supermarkets Coronavirus Panic Buying, Empty Tesco Shelves, Stock Piling, Hoarding Preppers - 22nd Mar 20
US Coronavirus Infections and Deaths Going Ballistic as Government Start to Ramp Up Testing - 21st Mar 20
Your Investment Portfolio for the Next Decade—Fix It with the “Anti-Stock” - 21st Mar 20
CORONA HOAX: This Is Almost Completely Contrived and Here’s Proof - 21st Mar 20
Gold-Silver Ratio Tops 100; Silver Headed For Sub-$10 - 21st Mar 20
Coronavirus - Don’t Ask, Don’t Test - 21st Mar 20
Napag and Napag Trading Best Petroleum & Crude Oil Company - 21st Mar 20
UK Coronavirus Infections Trend Trajectory Worse than Italy - Government PANICs! Sterling Crashes! - 20th Mar 20
UK Critical Care Nurse Cries at Empty SuperMarket Shelves, Coronavirus Panic Buying Stockpiling - 20th Mar 20
Coronavirus Is Not an Emergency. It’s a War - 20th Mar 20
Why You Should Invest in the $5 Gold Coin - 20th Mar 20
Four Key Stock Market Questions To This Coronavirus Crisis Everyone is Asking - 20th Mar 20
Gold to Silver Ratio’s Breakout – Like a Hot Knife Through Butter - 20th Mar 20
The Coronavirus Contraction - Only Cooperation Can Defeat Impending Global Crisis - 20th Mar 20
Is This What Peak Market Fear Looks Like? - 20th Mar 20
Alessandro De Dorides - Business Consultant - 20th Mar 20
Why a Second Depression is Possible but Not Likely - 20th Mar 20

Market Oracle FREE Newsletter

Coronavirus-bear-market-2020-analysis

Global Financial Markets Are More Distorted Than Ever Before

Stock-Markets / Financial Markets 2015 Mar 26, 2015 - 07:13 AM GMT

By: GoldSilverWorlds

Stock-Markets

Felix Zulauf writes: Investors started off 2015 with a slow global economy, low oil prices, a strong Dollar, and a deflationary Europe with great uncertainties on the progress of the US economy and the recent launch of Europe's quantitative easing. The question is, what opportunities lie ahead? This article highlights the main topics covered in an interview between Mr. Frank Suess, CEO and Chairman of BFI Capital Group, with the globally renowned Swiss fund manager, Mr. Felix Zulauf. Mr. Zulauf currently heads Zulauf Asset Management, a Switzerland-based hedge fund and has forty years of experience with global financial markets and asset management. He has been a member of the Barron's Roundtable for over twenty years.


Felix, first I would like to thank you for taking the time to speak to us. You are a renowned investor and fund manager with a solid track record over the past 40 years. In those 40 years, you've encountered many highs and lows in financial markets and business cycles. What do you think about the current cycle we are in?

The current cycle is very unusual, because never before have we seen authorities, central banks in particular, intervening on such a large scale and pumping so much money into global financial markets. Hence, global financial markets are more distorted than ever before and accordingly, the risks are very high. Investing becomes very difficult in such an unprecedented environment, as it can't be compared to previous situations.

When you look at our financial markets today, what would you consider are the most alarming themes? And how can they affect the current situation?

Global demand has weakened due to structural reasons. This is a situation that cannot be improved by pumping liquidity into the system. Zero or even negative interest rates have distorted the valuation and pricing of virtually all assets. We know that the longer a distortion prevails, the more investors get used to it and it becomes the "new normal" to them. That's where the problem lies!

I see three potential threats: 1) Inflation and bond yields rise and begin to prick asset bubbles; 2) The world economy gets hit again by more deflation due to a weaker Chinese currency that would reinforce deflationary pressure, dampen pricing and corporate profits and finally the real global economy; and 3) Asset prices continue to rise and finally exhaust on the upside at very high and unsustainable valuation levels. In my view, #3 will be the most likely outcome.

Central banks, with the US Federal Reserve in the lead, have embarked on a series of quantitative easing and credit stimulus packages. Particularly since the crisis in 2008, central bank influence on financial markets and the global economy has reached an unprecedented level. What is your view on this? Has this huge market intervention been justified? Will central bankers really be able to steer the global economy toward sustainable growth?

Markets are the best capital allocators and capitalism works if the authorities let it take its course. Had they let markets correct all the excesses in previous business cycles instead of printing more and more money, the world would be in a much better shape today. But our authorities had the dream to smooth the business cycle by not allowing the markets and the system to correct itself. It is difficult to correct this in a painless way, which is what the authorities are trying to do. That won't work.

How do you see this affecting accumulated wealth, particularly in the US? You were previously quoted as saying that "it will be a trader's dream, but an investor's hell". Could you please explain to our readers what you mean with that statement?

My hunch is that the US market will not make much progress this year but rather go up and down. This may be good for talented traders but bad for investors holding stocks that perform more or less in line with the S&P.

Following the Americans, and then the Japanese, Europe has now joined the "QE bandwagon". And, European stock markets, in general, currently look more reasonably priced than those in America. Should we now reallocate a bigger part of our portfolio into European stock markets?

On a relative basis, European markets are now higher priced than in 2007 versus the US. But cyclical forces remain in favor of European stocks due to the highly expansive ECB policies. Europe has zero interest rates or even negative rates in some cases. I wouldn't even be surprised to see German 10-year Bonds going to negative yields (they are 0.25% at present). There is plenty of liquidity around and the banks cannot lend it out. But still, Draghi wants to flood the market with more than one trillion of newly printed Euros. That is insane! The rationale: Weaken the Euro even further to help the structurally uncompetitive economies like Greece, Italy or France. That is all a very far cry from sound central banking, of course. For a while longer it will be bullish for European stocks, particularly for German equities, as they had already performed well when the EUR/USD was trading at 1.40.

The slump in the oil price has been a major topic since last summer. Factors include a drop in global manufacturing, America's increased production of shale oil, lower production by OPEC members. What is your interpretation? And where do you expect oil prices, and possibly commodity prices, in general, going forward? Who are the winners and losers here?

The commodity cycle peaked in 2011 and I assume the bearish trend will last another few years. Oil's decline is part of that down cycle. Demand and supply factors are at work here. Oil's market share of total energy has been declining for some years. The Saudis want to change this by having a lower price and want others to cut back on production. On the demand side, the world is getting more and more energy efficient (the automobile sector is an example) and therefore demand is now rising, but at a slower rate than the economy. The winners remain the energy consumers, in a broad sense, and the losers are the energy producers. That relates to individuals, companies, industries and national economies. But of course, energy is always only one component of the whole investment landscape.

Over the years, you've had great exposure to Asian markets, particularly Japan. Many eyes are now set on China. The Chinese are confident they will report strong growth numbers of 7% this year, while many analysts disagree, saying that it is unachievable on low export figures. What do you make of the current performance of the Chinese economy and its impact on Europe and the US?

China's investment and credit boom was the biggest in recorded history. It peaked a while ago and is now in a downswing. After such a boom, the economy usually slows for 5-7 years and that is what's happening in China. 7% growth is a joke; I would rather say it is now beginning to fall below 3% and won't stop slowing for several years. China will be forced to help the banking and shadow banking system to digest the fallouts of the previous boom and that means it will become more and more expansive in its monetary policy. In turn, this will weaken the Chinese currency. But China is moving slowly - which reinforces the slowdown - because it is afraid of a big wave of capital outflows that could create a shock to the banking system. Hence, they play down problems and move slowly. But eventually, the currency will weaken further. Once the Renminbi weakens by 10-15%, it will weaken prices of globally traded goods once more. In turn, this will dampen inflation further as well as revenues, profit margins and profits in the corporate sector around the world. When this happens, many equity markets may realize that the "emperor has no clothes". In other words, China is key to the rest of the world.

Greece is on the brink of collapse and possibly exiting the Eurozone. Negotiations are still ongoing, and the situation is still developing. Do you see a way out of the Greek leverage situation? In your view, should the Greeks stay or exit the Eurozone? And what is the best course of action for both parties, in your opinion?

Of course, Greece is bust - like several others. But as long as the fiction that everything is okay and financing will be provided remains, the world doesn't worry. My hunch is that the percentage of those in European politics that are fed up with Greece is rising and therefore it is only a matter of time until Greece defaults. A major restructuring and reform with Greece staying in the Eurozone will be very difficult to achieve because the ECB will hardly provide the capital necessary for the refinancing of a restructured Greece. Hence, an exit may happen and the Drachma could be reintroduced with a value that is perhaps 50-70% lower compared to today's currency. At that time, Greece has a true chance to recover. However, this would set prejudice of exiting.

When the SNB removed the cap on the CHF in January, did you see it coming? How would you evaluate this decision by the SNB, noting that only days earlier they said they would maintain the cap? Can we expect more of these shocking decisions in the near future and why so?

Well, I was pretty sure they would eventually separate from the ECB policy but had rather expected it to happen sooner. As a policymaker, you cannot tell if the truth could jeopardize your own policy. That is part of the game authorities must play. Well, we could see capital controls of some sort in the years ahead, because it is unreal to expect that all players are prepared to accept what other nations are trying to do at their own expense.

What markets would you consider the most positive or negative? What investment opportunities would you say could develop in the course of the year that one should take advantage of?

All equity and currency markets are pretty extended, at present. And many of the bond markets are as well. Hence, risk is high as assets are priced off a zero interest rate policy. I said last year that currency movements will play a key role. I expected the strengthening USD at the beginning of 2014, which is over a year ago. And European investors made 40% in US equities over the last 12 months while a US investor lost 10% in European equities, all calculated in their home currency. Hence, if you don't understand currencies, you may get lost in these markets. I would certainly stay as far away as possible from emerging market currencies, bonds and also equities. On the positive side, I expect the USD strength to continue over the next 2 years or so but see some potential for a correction this spring. Long US treasuries are the most attractive fixed income instrument in the world because the economy will soften again against the general expectations of an economic reacceleration and rate hikes may be postponed for longer than generally expected. In equities, I find German equities the most attractive. Leading German multinationals made good money when the EUR/USD was trading at 1.40. It is trading now, at the time of this interview, near 1.08 and it must be a bonanza for them in terms of earnings. I would use short-term setbacks to buy more, but always hedge the currency.

Mr. Felix Zulauf will be an expert panelist taking part at the coming BFI Inner Circle Wealth Forum which will be held in Florida on the 27th and 28th of April.

Source - http://goldsilverworlds.com/investing/felix-zulauf-global-financial-markets-are-more-distorted-than-ever-before/

© 2015 Copyright goldsilverworlds - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules