Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
Stock Maket Trading Lesson - How to REALLY Trade Markets - 26th Nov 21
SILVER Price Trend Analysis - 26th Nov 21
Federal Reserve Asks Americans to Eat Soy “Meat” for Thanksgiving - 26th Nov 21
Is the S&P 500 Topping or Just Consolidating? - 26th Nov 21
Is a Bigger Drop in Gold Price Just Around the Corner? - 26th Nov 21
Financial Stocks ETF Sector XLF Pullback Sets Up A New $43.60 Upside Target - 26th Nov 21
A Couple of Things to Think About Before Buying Shares - 25th Nov 21
UK Best Fixed Rate Tariff Deal is to NOT FIX Gas and Electric Energy Tariffs During Winter 2021-22 - 25th Nov 21
Stock Market Begins it's Year End Seasonal Santa Rally - 24th Nov 21
How Silver Can Conquer $50+ in 2022 - 24th Nov 21
Stock Market Betting on Hawkish Fed - 24th Nov 21
Stock Market Elliott Wave Trend Forecast - 24th Nov 21
Your once-a-year All-Access Financial Markets Analysis Pass - 24th Nov 21
Did Zillow’s $300 million flop prove me wrong? - 24th Nov 21
Now Malaysian Drivers Renew Their Kurnia Car Insurance Online With Fincrew.my - 24th Nov 21
Gold / Silver Ratio - 23rd Nov 21
Stock Market Sentiment Speaks: Can We Get To 5500SPX In 2022? But 4440SPX Comes First - 23rd Nov 21
A Month-to-month breakdown of how Much Money Individuals are Spending on Stocks - 23rd Nov 21
S&P 500: Rallying Tech Stocks vs. Plummeting Oil Stocks - 23rd Nov 21
Like the Latest Bond Flick, the US Dollar Has No Time to Die - 23rd Nov 21
Why BITCOIN NEW ALL TIME HIGH Changes EVERYTHING! - 22nd Nov 21
Cannabis ETF MJ Basing & Volatility Patterns - 22nd Nov 21
The Most Important Lesson Learned from this COVID Pandemic - 22nd Nov 21
Dow Stock Market Trend Analysis - 22nd Nov 21
UK Covid-19 Booster Jabs Moderna, Pfizer Are They Worth the Risk of Side effects, Illness? - 22nd Nov 21
US Dollar vs Yields vs Stock Market Trends - 20th Nov 21
Inflation Risk: Milton Friedman Would Buy Gold Right Now - 20th Nov 21
How to Determine if It’s Time for You to Outsource Your Packaging Requirements to a Contract Packer - 20th Nov 21
2 easy ways to play Facebook’s Metaverse Spending Spree - 20th Nov 21
Stock Market Margin Debt WARNING! - 19th Nov 21
Gold Mid-Tier Stocks Q3’21 Fundamentals - 19th Nov 21
Protect Your Wealth From PERMANENT Transitory Inflation - 19th Nov 21
Investors Expect High Inflation. Golden Inquisition Ahead? - 19th Nov 21
Will the Senate Confirm a Marxist to Oversee the U.S. Currency System? - 19th Nov 21
When Even Stock Market Bears Act Bullishly (What It May Mean) - 19th Nov 21
Chinese People do NOT Eat Dogs Newspeak - 18th Nov 21
CHINOBLE! Evergrande Reality Exposes China Fiction! - 18th Nov 21
Kondratieff Full-Season Stock Market Sector Rotation - 18th Nov 21
What Stock Market Trends Will Drive Through To 2022? - 18th Nov 21
How to Jump Start Your Motherboard Without a Power Button With Just a Screwdriver - 18th Nov 21
Bitcoin & Ethereum 2021 Trend - 18th Nov 21
FREE TRADE How to Get 2 FREE SHARES Fractional Investing Platform and ISA Specs - 18th Nov 21
Inflation Ain’t Transitory – But the Fed’s Credibility Is - 18th Nov 21
The real reason Facebook just went “all in” on the metaverse - 18th Nov 21
Biden Signs a Bill to Revive Infrastructure… and Gold! - 18th Nov 21
Silver vs US Dollar - 17th Nov 21
Silver Supply and Demand Balance - 17th Nov 21
Sentiment Speaks: This Stock Market Makes Absolutely No Sense - 17th Nov 21
Biden Spending to Build Back Stagflation - 17th Nov 21
Meshing Cryptocurrency Wealth Generation With Global Fiat Money Demise - 17th Nov 21
Dow Stock Market Trend Forecast Into Mid 2022 - 16th Nov 21
Stock Market Minor Cycle Correcting - 16th Nov 21
The INFLATION MEGA-TREND - Ripples of Deflation on an Ocean of Inflation! - 16th Nov 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Felix Zulauf talks Financial Repression and Warns of What is Ahead

Stock-Markets / Financial Crisis 2016 Feb 11, 2016 - 10:41 AM GMT

By: Gordon_T_Long

Stock-Markets

FRA Co-founder Gordon T. Long recently interviews Felix Zulauf, Founder and President at Zulauf Asset Management AG.

Felix Zulauf has worked in the financial markets and asset management for almost 40 years. He started his investment career as a trader for a large Swiss Bank and received training in research and portfolio management thereafter with several leading investment banks in New York, Zurich and in Paris. Felix joined Union Bank of Switzerland (UBS), Zurich, in 1977 and held several positions over the years including managing global mutual funds, heading the institutional portfolio management unit and at the same time acting as the global strategist for the UBS Group. After two years with a medium-sized Financial Organization as a member of the executive board, he founded his wholly owned Zulauf Asset Management AG in 1990, allowing him to independently practice his own individual investment philosophy.


Mr. Zulauf focused on macro and strategic issues within the firm. In spring 2009 Zulauf Asset Management was split in two parts and Felix Zulauf fully owns the split-off Zulauf Asset Management AG focusing on some advisory activities to selected family offices and institutions including a US based global macro fund. Felix Zulauf always believed that the world economy and the financial markets move in cycles. That has helped him avoiding all the major casualties in the financial markets since the 1973/74 bear market in equities. He has been a member of Barron's Roundtable for over 20 years.

Question: How would you define Financial Repression?

Felix Zulauf: "Financial Repression is an attempt by the government and central banks to reduce free market forces and the freedom of individuals to do what they would do if they had the free choice. It is compounded by market manipulations such as money printing, regulations, and distorting the interest rate; which are the best capital allocator there is and much better than any committee or central bank. Government authorities force capital to be allocated wherever they want capital to be allocated and not where the market would allocate it. It is the beginning of an era that will lead to decisive decline of prosperity and individual freedom."

Question: What type of economist would you consider yourself?

Felix Zulauf: "I am closer to the Austrian School. It is important to know that economies and financial markets do not progress in a linear way. They are cyclical; there are expansions and contractions and recessions have the job to remove the excessive build up in expansions. Bear markets have the same job, to reduce excess in boom markets. This is a very natural action and reaction process."

Question: You wrote the following - could you elaborate on it:

Felix Zulauf:"At some point in time we have to get rid of the debt that we have. Obviously central banks are trying to do that by financial repression. The consensus among the investment community is that financial repression will work. I'm not so sure. Financial repression means that they put interest rates below the inflation rate, and by doing that the debt-to-GDP level of the different segments in an economy, the households, governments, etc., drops down over time. I'm not sure that policy will be successful, but for some more years they will try that. If it doesn't work, then we will go into other things such as currency reforms, confiscation .. It's very hard to imagine the world will solve its problems in a conventional way. More likely we will see more government controls on capital flows as things get out of control over time."

Central banks have used mechanisms to reduce the level of debt ration within the economy. They have tried these mechanisms for many years and it hasn't worked. You have seen some deleveraging in parts of the world economy, but in total the world economy has leveraged more. Debt to GDP is the highest level it has been in modern history and therefore this route the central banks have taken has failed.

Question: Where are we in the possible outcomes you warned us of?

Felix Zulauf: If it unfolds in a free market mechanism fashion then it would lead to massive bankruptcies but I doubt the authorities will allow this to play out be cause it can lead to a systemic collapse. I think eventually there will be another burden on taxpayers and there will be attempts to confiscate some of the wealth out there through whatever means they can think of to bring down and finance the debt. The bottom line is in the future we will be less wealthy.

Question: How will the leverage failure unfold?

Felix Zulauf: I don't know if there is a way to escape. Even if you made all the right decisions and came out a winner and were able to preserve your capital, they would most likely tax you on whatever gains you make. Ideologically, we are in a very highly socialist environment. You have to have a certain diversification as an investor and you have to make sure you're in the right jurisdiction.

Question: How can the fed raise rates into a economy where broad fires are burning especially in credit markets?

Felix Zulauf: Quantitative easing does not work. You cannot fix the problems rampant in today's economies by printing mass amount of money. You have to solve problems from a political and economic angle but not by printing money. I don't expect any further rate hike by the Fed, they are attempting normalize but it won't work because the economy is soft. They have tried and I think it is becoming more and more apparent to them that money printing does not work. Rather than money printing I think they have adopted a bond yield target. Central banks are tired of QE, they realize they have to leave some pressure on the economy, politicians, and entrepreneurs move forward and make the necessary decisions. I don't think this is a good message to the financial markets, because it means the financial markets have to suffer more pain until the central banks come in and attempt to fix the system again.

Question: What does the BOJ's recent announcement of NIRP signal?

Felix Zulauf: With the world economy growing at such low rates, we have a risk of running into systemic growth again. I suspect the Chinese will eventually let the currency go and then you have another deflation hit the world economy, this is when you run into another systemic crisis.

Letting the currency go and letting the currency find its own equilibrium will lead to a central bank crisis. This affects pricing power and when pricing power is affected it trickles down to profit margins, and therefore corporate earnings are going to decline.

Abstract written by Karan Singh

Gordon T. Long
Publisher - LONGWave

Signup for notification of the next MACRO INSIGHTS

Request your FREE TWO MONTH TRIAL subscription of the Market Analytics and Technical Analysis (MATA) Report. No Obligations. No Credit Card.

Gordon T Long is not a registered advisor and does not give investment advice. His comments are an expression of opinion only and should not be construed in any manner whatsoever as recommendations to buy or sell a stock, option, future, bond, commodity or any other financial instrument at any time. While he believes his statements to be true, they always depend on the reliability of his own credible sources. Of course, he recommends that you consult with a qualified investment advisor, one licensed by appropriate regulatory agencies in your legal jurisdiction, before making any investment decisions, and barring that you are encouraged to confirm the facts on your own before making important investment commitments. © Copyright 2013 Gordon T Long. The information herein was obtained from sources which Mr. Long believes reliable, but he does not guarantee its accuracy. None of the information, advertisements, website links, or any opinions expressed constitutes a solicitation of the purchase or sale of any securities or commodities. Please note that Mr. Long may already have invested or may from time to time invest in securities that are recommended or otherwise covered on this website. Mr. Long does not intend to disclose the extent of any current holdings or future transactions with respect to any particular security. You should consider this possibility before investing in any security based upon statements and information contained in any report, post, comment or suggestions you receive from him.

Copyright © 2010-2016 Gordon T. Long

Gordon T Long Archive

© 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