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5 Year Market Outlook: Felix Zulauf

Prosperity is a great teacher; adversity is a greater.

~William Hazlitt

If you believe the opening quote, we are in for some great lessons – at least according to Felix Zulauf of Zulauf Asset Management in Switzerland. The transcript of a recent interview with him was published by McAlvany Weekly Commentary. It is optimistically entitled Marching Full Speed into Calamity.

It’s rare to find such great detail in a single interview, especially if you’re accustomed to consuming your market commentary via television, where guests are rarely allowed to finish a sentence let alone expand on their thoughts. This far-ranging discussion covers Zulauf’s views on everything from stocks, bonds, and gold to sovereign debt and the fate of the European Union.

His views are not too far from my own, and he even uses a similar weather analogy. (See Cloudy with a Chance of Hurricanes.) Back in February of 2010 I wrote the following:

As the title of this post indicates, I think we’re in for some stormy weather. At some points, things will look like they are improving. Those periods may only indicate that we are either in the eye of the storm, or simply waiting for the next one to thunder ashore. Use those times to shore up your defenses.


I believe that the 2010s will be characterized by a series of rolling debt crises that flare up and fizzle out, causing higher volatility in all global asset classes. There will be a persistent sense of unease punctuated by sudden downdrafts and equally unpredictable bounce-backs. Those familiar with market jargon will recognize what I’ve just described as a secular bear market. I think this one will have sharper claws than some of those we’ve experienced in the past.

Secular Bear Market & Inflationary Depression

Here are a few reasons Zulauf thinks the secular bear has more room to roam:

  • Professional money managers are pretty much fully invested. They couldn’t afford to sit out a rally as strong as the one we’ve seen over the past two years, but they are probably not able to commit much new capital to the markets as a result.
  • Monetary policy has fueled the recovery in asset prices while fiscal policy has boosted the economy. There’s little political or popular appetite for more fiscal stimulus even as “the economy is beginning to stutter.” Options for more monetary policy interventions are growing thinner as well.
  • This recovery has fallen far below any other in the post-war era “and this tells you that there is something wrong with the whole economic setup . . . those are the structural factors.”
  • Consumers are tapped out, and this reality will curb final demand for several years to come.
  • Economic growth in the U.S., Japan, and Europe will surprise to the downside in 2012.
  • Given that 2012 is an election year, attempts at further stimulus is more likely then. Like the other attempts, however, this will likely stimulate markets, but not necessarily the real economy.
  • The S&P 500 could approach its March 2009 lows (around 666) or even breach them down to 500, but that likely won’t happen over the next 2 – 3 years as authorities around the globe pull out all the stops to prevent a collapse. He thinks the S&P 500 will trade in a range from around 1000/1100 to 1500/1600.
  • Once we reach the middle of the decade “markets will sell off one more time -big time.” He doesn’t know whether we will simply come close to or breach the 2009 lows.
  • China is slowing down, “but will eventually turn around.”
  • “I think it is just a very choppy, sloppy, economy, with underemployment. You could actually call it an inflationary depression, because we know that the true consumer price inflation for the average household is probably 5-6%, and if you take that number, it means that you have a shrinking economy, in real terms. That is how the average person really feels, because their financial situation reflects that reality.”

Where to Invest?

Here are a few investment implications over the next few years:

  • “Gold is the one currency that reflects all these problems.” Own gold.
  • “I say that we are moving into a thunderstorm here, and it will rain and pour. There will be lightning. There will be flooding. There will be mudslides. Everybody will get wet. But the most important thing is, not to stand where the lightning strikes, not to be where the flooding is, or the mudslides. That is now I describe it. It is very difficult to come out as a winner, and actually, if one is smart enough to figure out what exactly to do, and comes out as a winner, I am pretty sure that governments will tax his profits away quite dramatically.”
  • “For an investor, in such an environment, you should have a defensive basic position, and trade, medium-term, on the bullish and the bearish side, in the stock market. That is what you can do. I do not believe we are in an environment in which you can really frame a long-term investment policy where you are primarily long equities. I think that is too risky.”
  • Crisis intervention by governments will boost public debt and we will eventually see supply overtake demand in the bond market. But for the next couple of years, “they will probably swing bond yields within the extremes of 2008.” After that, however, the bottom in yields will be in and they will likely break to the upside. “So bonds are not an attractive investment.”

(Editor’s Note: Emphasis above is mine.)

If you’re into this kind of stuff, this interview makes for great reading while you’re enjoying a summer weekend with a nice cool beverage. Thanks for reading. I hope you get to experience the latter whether you read the whole interview or not! 🙂

What are your thoughts on Mr. Zulauf’s forecast?



  1. cashflowmantra

    Thanks for the heads up. I will go and take a look at the interview. I fully believe gold is a good place to be. I will be focusing on repaying debt over the next several years. That is one “investment” that really can’t be taxed plus I will make a guaranteed return on my funds.

    • 2 Cents

      It really is an interesting interview. Whether he’s right or not, I found his thoughts to be pretty fascinating. He had quite a bit to say about the future of the EU as well.

      Thanks for stopping by! 🙂

  2. Value Indexer

    Is it a secular bear market (prices drop in 10 years) or a secular neutral market (prices are the same in 10 years)? A few months ago I saw a good illustration of this; I forget if it was Ken Fisher’s Debunkery or Jim Otar’s Unveiling the Retirement Myth. I think it was for the US market and it showed how the market alternated between 10-20 year runs that were bull, bear, or neutral. The bull markets are certainly less common than people think after 1985-2000, but the bear markets were the great depression and… I think there might have been one more but I’m not sure.

    • 2 Cents

      A secular bear market is not a 10-year down trend. It’s usually a long period of time where equities fluctuate a lot and basically end up where they started. The last 10 years fits that description pretty well.

      Typical secular bears end with single digit PE ratios. We’re not there yet, but those have historically been the best times to buy the indices.

      Thanks for reading! 🙂

  3. Value Indexer

    I think the study showed bear markets were closer to 5-7 years. I guess you could say every bear market is the start of a neutral market since it goes back up eventually and ends up where it started. In either a declining or volatile sideways market you could buy at low points, so the difference is really how long it takes to recover. Let’s cheer for P/E 5 in 2015 🙂

  4. Bob Carmody

    Zulauf has been recommending gold for the last several years at the Barron’s round table. He also thinks Singapore is “one of the best governments in the world.”

    Zulauf is delusional and should be ignored.

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