Are we approaching a market peak or a crash? Legendary investor Felix Zulauf warns of extreme U.S. market valuations, drying liquidity, and risks from inflation that are far worse than reported. He shares insights on the current tech bubble, global economic struggles in Europe and China, and the potential fallout from trade wars and tariffs. With bold predictions for 2025 and beyond, in this in-depth interview with James Connor, Felix offers a clear look at where markets could be headed next.
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Felix Zulauf 0:00
The stock market is in the very high levels that we have seen at peaks, like in 2000 in 2021 etc. So we are within the highest 2% of the valuations, whatever yardstick you take historically in the last 140 years. So we are in bubble territory. This is the biggest concentration in my whole career, and I have been in the game for over 50 years. So this is extreme.
James Connor 0:36
Hi and welcome to wealthion. I’m James Connor. Well, here we are at the end of 2024 it’s almost over, and I’m getting ready for 2025 and one of the things I always like to do is we head into a new year, is set some financial goals. And if you would like to have a discussion with a financial advisor about getting some financial goals, go to wealthion.com/free, to set up a free no obligation meeting with a financial advisor. Once again, That’s wealthion.com/free to find out more information. Now on to the show.
James Connor 1:13
Hi Felix. Thank you very much for joining us today. How are things in Switzerland? Thank
Felix Zulauf 1:17
you for having me, Jimmy. Oh, things in Switzerland are great. It’s a sunny day, it’s a full moon. Usually around full moon, you have beautiful weather, and usually also a short term turn in the stock market. So things are very good here. Thank you very much. So
James Connor 1:34
I want to talk about the stock market, and we have so many things to discuss, and I’m not too sure where to start, but I want to get your views on the global economy. And given that the US is the largest market in the world, representing 25% of global GDP, why don’t we start right here? And it sounds like it’s been a an amazing year. The market is still or the economy is still, growing two to 3% we have inflation near that 2% target rate of the Fed, the S, P and the Nasdaq continue to make new highs every other day, things look pretty good to me. What is your assessment of the US market? Well, if
Felix Zulauf 2:11
it almost cannot get any better, then we are at the top. But I’m kidding. I think fundamentally, we are dealing with three different blocks here, China, Asia, Europe and the US. And they are all in a different economic condition. And the economic condition differs quite decisively. The US is by far the best performer, no question about it. And what’s unique about the US situation is that for the first time in modern history, labor supply fell below labor demand in in this current cycle, and when you have a labor supply below labor demand, you have a tight employment situation, and the tight employment situation leads to a good situation in real wage income, real income, household income, and that’s what we are having, and that’s why we do not have had a recession as Many of the conventional indicators did forecast. So I think, I think that’s important to keep in mind, maybe some of the numbers are wrong. We do not know that they will revise the labor and employment numbers later on. They are probably a little bit weaker than what they reported after the election, of course, and and that may change the situation once supply goes above demand, or demand goes below supply, then, of course, you have a deteriorating employment situation, and then the economy could begin to soften as many of the indicators have forecasted what what you have in Europe is a sort of a stagnation type of situation. And I think that stagnation is not part of the business cycle problems that we have, but it’s structural in nature. We have two high energy prices. We have too much regulation due to the EU and things like that, and I think the European competitors have priced themselves out of the market in many ways and have become uncompetitive. That is particularly true for key industries like the chemical industry or the automobile industry that is key for Central Europe, including Germany, China is in a very different situation. Again, China is in a deflationary trap. They have an over built real estate and infrastructure market, and you cannot remove. 100 million empty homes overnight in a population that is not is not growing anymore, and that is a long term process and will be with us for years. And that’s why China has lost the function of the locomotive of the world economy that has passed to the US. And Western analysts and economists always think the Chinese will come to the rescue and do the western style type of big bazooka stimulus that is not going to happen. All they provide is enough support to keep the system afloat. But stimulus, European or US style with a big bazooka, will help for a year, and then it goes back down again. We have seen the same thing in Japan. Japan was a similar situation in the 90s and and I remember when Japan came on with the stimulus. It really worked for a year, and once the stimulus was spent, we went down again and and that’s the same in China, and the Chinese know that. So the only game in town really has been the US and the US stock market, and that’s why it attracted so much capital, capital flow from all over the world, and the dollar has been on the rise since 2008 that is a pretty long run that it had, that we have seen, and it’s getting overvalued. And the capital is a you mentioned. The GDP weighting of the US is about 25% of world GDP, the market capitalization of the US stock market, is almost 75% that’s an extreme. It’s a new record. It’s an extreme. And you also see that the valuation of the stock market is in the very high levels that we have seen at peaks, like in 2000 in 2021 etc. So we are within the highest 2% of the valuations, whatever yardstick you take historically, in the last 140 years. So we are in bubble territory. And bubbles, of course, can go on and on and grow bigger. The question is, how do bubble bursts? And the bubble burst when liquidity dries up? And so the question of liquidity is central to the current situation. Over the last two years, the liquidity that really drove the stock market higher was the liquidity that was unlocked by the Treasury by issuing short term treasury bills instead of bonds, and thereby unlocking reverse repurchases the money market funds had bought before because they Couldn’t get all the treasury bills. And by doing that, they unlocked sterilized money in the Fed’s balance sheet and injected it into the financial system. That was the driving force, those reverse Reapers, repurchase agreements, they are now down to a very low number. So I think that game is virtually over. We have a little bit left from another source, that is the general account of the Treasury with the Fed, we have the debt ceiling comes into play in early January, and that means we need to Congress needs to raise the debt ceiling before the Treasury can borrow again, and that means that they have to spend the money that they have on their general account and and when that money, which is sterilized inside the Federal Reserve Bank or bank system, when that is injected into the financial system, and that is when you pay a bill or an invoice by the government, then you create deposits, etc. And that is another source of liquidity. We are down at 700 billion. And we could run that down to 100 billion or so. So we would have, in theory, another 600 billion to go. But even if you take the 2 trillion already spent in repurchase agreement and another 600 million to go, it will tell you that we are in the very late stage of the bull cycle. Whether we have another three months left, or six or nine months, I do not know. I assume that sometimes, in 25 the liquidity situation will really begin to deteriorate, and then the bubble will be pricked, and when that bubble bursts, then we go down. It’s interesting. When you look at all the forecasts, you know the forecast. Are within the limits of 5500, and and 7000 or so that those, those that’s where 85% of all the forecasts are.
Felix Zulauf 10:16
And that’s an average year. That would be an average year, whatever, within that frame, it will be an average year. I don’t think we’ll have an average year. We have had two exceptional years on the upside, and I think we either go above 7000 or we go below 5000 or we could see both. And the question then is, which number will we see first, I think we could see 5,001st and then go to seven to the final peak. There are some controversial factors that I see. The technical factors are quite bearish. At the present time. We are in a situation where breast does not confirm the bull run where momentum is rolling over on a medium term basis in virtually all the indices and many of the long term indicators are near sell signals that are early sell signals, not late. Or coincidence, sales signals, early sell signals. And we see that around the world, and we have a setup of virtually all the markets approaching or being on a long term sell signal. It probably suggests that we are in the late stage of the bull cycle, beginning the topping process. And the topping process will include a lot of volatility, big swings in the markets, maybe first down and then up again, and then it breaks and goes into a bear cycle. The one thing that disturbs me a little bit is that next year is a year ending in five, and years ending in five are the strongest year of the decade. Historically speaking, there is one exception in the last over 100 years, since we have market data, where the fifth year was slightly negative. I think it was 2015 down 1% or something like that. So it does happen, but usually the fifth year is a good year, but we had a very powerful third and fourth year. And third and fourth year are usually average years, so that’s why, I guess we have borrowed from the strong fifth year to some degree. So my my inclination is to say we have a short term or medium term top very early in the year, probably in January, and then a sell off. There could be, depending on what the news flow will be, there could be, you know, 15% or 17% or so, more than 10% I guess, and then up again, because then the Fed would cut the interest rates further after such a decline, because they know that we are in an asset driven economy and and then we would have another run up, maybe to 7000 or something like that, before the bear market cycle begins. And usually you have in the in a four year cycle, you have three years up and one year down, more or less. We started in fall of 22 and three years up would be fall of 25 so a summer high, a sugar high in summer of 25 would fit very well, and then a bear market in 26 that’s in a nutshell, what I what I see ahead.
James Connor 14:03
So those are interesting stats, and thanks for sharing those. Now. You talked about valuations, and this market reminds me very much of 1999 and 2000 just in terms of valuations and some of the moves we’ve seen this year and just in the back half of the year, they’re staggering. Micro strategy is up 500% on the year. Palantir is up 350% Nvidia is up 160% Tesla is up 80% just in the last two months alone. Do you find this period we’re living through right now very reminiscent of what we saw in the late 90s and the early 2000s
Felix Zulauf 14:41
it’s usually in a in a powerful bull market, where you had a bull market leadership for not just one cycle, but several cycles. And technology has been not just leading Since 22 it has been leading in the years before. Usually. In the last six months of that leadership, you see a doubling of the price of the leaders. That is common. That is common, and what you just mentioned is actually very common late in the stage, in the cycle. It’s not what usually happens in the midst of a bull market, but in the later stage, and that catches all the attention. And that’s why at the top, most investors are bullish and are bearish, because you get all the rosy comments and forecasts, etc, etc. You know, I think Artificial intelligence has been the dominating topic theme that has been driving the leadership stocks and and I think that is real. Artificial Intelligence is real and is here to stay. But as in the internet, when a new innovation comes on and makes its round into the real economy, the first big up cycle is a cycle where they over invest, where the leaders, and those who want to be among the leaders, over invest, and then shortly thereafter, they realize that the return on their investments will not be there, not to the degree expected. And then the cycle turns down and calms down, etc, and then it goes up again and and the in that down cycle, or calming phase or pausing phase, usually those stocks decline very sharply. And I recall in with the internet retailing coming on stream, Amazon was the leader and and in the first down cycle, Amazon stock went down 90% and it’s a great company, you know, and the business model is excellent, etc. So I just mentioned these to say that the declines could be terrific, as terrific as the rises that we have seen. The question is, when is the exact top and when do we get off and things like that, and this is virtually impossible to say in advance, I think I’m happy when I can tell you that this is the top that we have seen two weeks ago, and you have to get off that’s good enough for me. You don’t have to be the hero and get the top pick. And selling in advance is a tricky thing, because usually in bubbles, you sell too early because you are driven by rational analysis, and rational analysis in a bubble doesn’t help you to pick the top because the top is irrational. That’s why I would wait until I see the signs. And you know, in my career, I have seen many bear markets. I made money in everyone by selling short, and I’m pretty hopeful that I will get the stop also to finally sell those stocks and and maybe operating via puts or sell directly. It’s not for everybody’s is not for everybody’s taste selling short, but getting off the train late in the game, or when the game begins to change, is a good thing to do, because you have to protect your assets and your savings and not lose more than what you made in the previous cycle. Because, on average, the average investor, and there have been studies about that the average investor, or most of the stocks bought in index terms, are bought about 20% below the top, you know, and when the market declines 20% or more, the majority loses money for the full cycle and and not very many people are buy and holders for the very long term. You see that in the transaction volume in the stock market, you know, it turns over so quickly. It’s not comparable to 20 or 30 or 40 years ago, when I was also operating the markets.
James Connor 19:30
You raise a very good point, and that’s one of the problems I find myself making all the time. I sell way too early. And my big problem is, to your point is you can’t think like a rational investor during an irrational market move.
Felix Zulauf 19:43
Well, you, you look, you have to, you know, markets are crowd phenomenons. It’s mass psychology. I mean, one part of the market is the rational analysis of valuation business models that. Etc, etc, and and the irrational or sentiment analysis is understanding how the crowd behaves, and crowd behavior. You look at anecdotal evidence, we have seen that one of the famous bears has just recently turned bullish. Those are, those are things that I that I watch and that tell me it’s late in the game. I remember in 2000 early 2000 Gary Brinson, a value investor who sold his company many, many years before to UBS, was kicked out as a chief strategies because he was on value and not on growth, right when growth peaked and and I think the market strategist of Mary Lynch at that time was also kicked out and let go because he was he was wrong for the Last year. And I recall I had I ran a fund for a major investment bank in the US as a subcontractor, and for European equities, and I could go long and hedge 100% and because the 98 decline that was wishes short and vicious. I was fully hatched, and they thought I could walk on water, and more money was coming in, and they wanted me in in 99 to go into all the technology stocks. And of course, I did, but not into over waiting. And then I underperformed for the last six months or so. And then new management came in, and they took the fund away and put it into two new funds. One was a technology fund, and one was a communication fund, and both went down a lot thereafter, one, I think, 90% and the other one 80% or so, that’s normal. And I’m looking for signs of anecdotal evidence, of things like that, when somebody who has been bearish turns bullish, or when a big bear has been let go, and things like that. Those are signs that you usually see around the top and, and you know what people forget? And this is one, actually, it’s two of Bob Farrell’s rules. Parabolic markets do not correct by going sideways. So when and and when you go to an extreme in one direction, you usually go to an extreme in the other direction. So when you have that knowledge, you should then focus on timing the exit. You should not squeeze it to the last minute or the last uptick. I think people should prepare for a high and a reversal in 25 my guess is a first high, very early in the year, a correction, another rally to a higher high, probably in summer or so of the year, and then down. And that’s my working hypothesis. Of course, as we go through the year, I may have to adjust that step by step, but I’m quite confident that I will be very close to the top. After the top, I will realize it and tell my clients to sell out or protect their assets in
James Connor 23:36
Felix, when the markets peaked in March of 2000 in the ensuing two years, the S P dropped 50% the NASDAQ lost 80% do you envision the same sort of moves on the downside with this pullback when we get that major top you
Felix Zulauf 23:55
know? The The funny thing is that never before have so many investors gone to indexing as this time, they have learned that active managers usually underperform in the long term. They have some good years and some bad years, and they underperform. So indexing is the dominant force here in investments. And when you look at indexing, every guy around the world who buys a World Index puts 73% of his money into the US index. And out of those 73% and this goes into the US dollar, and out of those 73% in the US index, you probably have more than 1/3 in 10 stocks. So this is a concentration the world has never seen before. This is the biggest concentration in my whole career, and I have been in the game for over 50. Years. So this is extreme. And when I see extremes like that, you know, I know when the trend reverses, whenever that will be the extreme will have a high price, because those stocks go then down the most because when investors then begin to lighten up and try to protect their portfolios. They sell index funds. And by selling index funds, they sell those stocks, those 10 stocks. So it will be as concentrated on the downside as it is concentrated on the upside. And I think that leads me to the next bull cycle, which will then start maybe in late 26 or whenever. Because in the down cycle, you will see that the stocks that have been outside of the limelight, like the value stocks, like the cyclical stocks, they are underweighted in the portfolios, so the pressure to sell those stocks will be much lower than the pressure to sell the other stocks, and therefore they will begin to decline less and outperform and develop relative strength. They develop relative strength into the next bottom. And every good technician knows those stocks that produce relative strengths during the later stages of the bear cycle will be the leaders in the next up cycle and and I think the next up cycle then will be one where you know you will see stimulus on the fiscal as well as on the monetary side. And I think it will be very bullish for commodities. It will be bearish for the US dollar, as the US central bank begins to become aggressively easing and and you have a next bull market in commodities and then the material stocks, the deep cyclical stocks, they will do very well, probably not because their business is so fantastic, but they are cheap. And as you debase the currencies, you increase the value of real assets, and that creates rising earnings and things like that, but that’s in the future, next cycle.
James Connor 27:28
So I want to ask you a couple of questions on the economy, and more specifically, inflation and interest rates, because these two elements can really drive what’s going to happen in 2025 and regardless of who you listen to, whether it’s government officials or the Fed or economists, everybody thinks inflation is under control in the US because it’s approaching that 2% number, but what they neglect to say is that the price of goods, services asset classes are up 3040, 50% since 2020 and those prices are never going down again. And I was recently in Whole Foods. I go there just to window shop. I can’t afford anything there now, but the price of beef tenderloin was $60 a pound. That’s Canadian dollars, so that’s maybe 4344 bucks us, okay? And I’m shocked by that, because just back in 2020 that same beef tenderloin was maybe $25 and it’s never going back to 25 bucks. And when I look at these prices like I just see ongoing inflation. And I recently saw an interview with Stanley Druckenmiller. He said the biggest threat to 2025 in his mind, is a re acceleration of inflation. What are your views on that? It
Felix Zulauf 28:49
you know, I think we are in an inflationary period. I think the numbers, as you also suggest, are not true, and there is a government shadow statistics. They say it’s probably about double of what they show. And Larry Summers, I think a year or two ago, did make some studies on it and research, and wrote the paper and came to the same conclusion. So when in inflation topped at 9% he said his analysis that it was 18 and things like that. So I think you’re right. Another observation I have, I come to the US for the last 50 years, and it is the first time, now, after the pandemic, really, in the last two years, that the first time that an equal meal in an equal restaurant in Florida is more expensive than in Switzerland, and Switzerland is the most expensive spot in Europe. So that is telling, I think you the US really has a serious inflation problem. And you know, the lack. Election result was not an accident. The election result was a manifestation that people are fed up with with the economic situation, the majority, the 50 the lower 50% of the income earners, you know, they are living through hard times because everything is going up. I see that my costs in housing in Florida, they are up double digits. I mean, and not very low double digits, you know, I it’s close to 30% 25 versus 24 a friend showed me his health insurance, which is up without any changes, which is up 90% year over year 25 versus 24 so I think there is a serious inflation problem. And let me say this, there are two kinds of inflation. What we measure in the CPI is primarily traded goods, and traded goods has been kept down in price due to the influence of China entering the global goods market. They are now the biggest manufacturer in the world. By far, 1/3 of global manufacturing capacities in China, they depressed those goods prices. What never came down was service prices, meal in the restaurant, a haircut, or real estate, etc. They continue to go up. And actually the two lines, if you meddle them, are the spread is growing wider and wider, and our central banks look at the CPI, which is wrongly calculated and computed in my way due to the wrong rating, and they think everything is fine, and they try to solve Every economic problem by throwing money at the system instead of really going for the cause of the problem, etc. And what that leads to is real estate prices continue to go up, and the average Joe cannot afford his own home anymore. And this is a growing disparity of the haves and the have nots, and this creates social problem. And this is another thing that really came up during the election in the US, and it’s a problem in Europe as well. It’s the same thing. And I think the central bank should really do a better work or use different inflation statistics and and put real estate prices to a normal weight into the CPI inflation. I think those things are wrong, and that leads to wrong or misguided economic policy, and that has created the bubble that we are in. You know, that’s why stock prices always go up all the time. That is a manifestation of our currency values going down all the time. I mean, the dollar is down 98% since it was put in place by the Federal Reserve Act in in about 100 years ago or so. So this is a money illusion, and it works very well for the halves and the upper 25% you have a decent job, you have a decent income, your balance sheet gets stronger every day as prices go up, and you can spend and you can save less. And when there is not enough money for the government, it borrows, you know, and and it builds up that. That’s the situation we are in. And I think in the next few years, by the end of this decade, we will come to the point where this strategy doesn’t work anymore, and then we will hit the hard wall, and we’ll have a major calamity, and the crisis and the system has to be cleansed. That’s that’s what I see in terms of short term inflation. We are above target rate. The economy is booming. If you look at Atlanta, fed Nowcast, it is 3.3% growth in the fourth quarter. We have quality spreads very narrow. We have full employment, so to speak. And the Fed is cutting rates. They are from a different planet. I don’t know what they are smoking, but something is wrong here. You know, they are a political entity instead of an economic entity and the monetary entity, and I think that is the major cause of all the problems we have.
James Connor 34:56
So we can’t have a discussion on inflation and interest rates with those. Up talking about the US dollar, and you mentioned this a couple of times, but I can’t get over the strength of the US dollar, just this year alone, and versus my currency, the Canadian dollar, the Canadian dollar is down 8% this year. And every time I go to the US now, I’m paying like a 40% premium for whatever I want, and I can’t even afford to take my family to Disney World now, because if I do, I gotta take a second mortgage out of my home. But what do you think of the US dollar, and does it continue to stay as strong as it has been?
Felix Zulauf 35:32
Well, the fiat currency are all unhealthy currencies, or actually they are credit, they are not currency. They are not money, so to speak. Money is gold. Gold is money. It has no liability. But all the currencies we talk about, they are IOUs, so to speak, and and the US dollar has benefited from the outperformance of the US economy, vis a vis other economies. You know China, which is a closed and controlled currency market, close capital account. China has its problems since 2015 16 or so, Europe has its problems. I refer to that at the very beginning. And therefore, the US economy was by far the best. And then the the US central bank made something very interesting. They put in place a a restrictive interest rate structure, and said, We are fighting inflation. But through the back door, they injected large amounts of liquidity into the financial system, you know, and the currency market has not taken notice of it yet. I think that will change depending on how the trade talks will go. You know, President Trump is coming up and wants other trading partners to export less to the US or import more from the US and things like that, and he is using tariffs as his stick. That is a very dangerous policy. It could work, but it could also create a lot of havoc. You know, in 1930 June, 1930 there was the smooth holy Act introduced, and that was tariffs, and then what was a medium term correction in the stock market from october 29 turned into a massive calamity, and the Great Depression eventually. So I looked at the tariffs that Trump suggested, and the tariffs he suggested would be equal to the tariffs we had from 1900 to the end of World War Two. And if he did have what he suggested, the tariffs would be equal to what we had from the beanie beginning of World War One to the end of World War Two, and when you look at the economic performance during those years, irrespective of the war, they were not very good. And tariffs are a tax. Tariffs are a tax. And when you tax more, it is it leads to lower prosperity and not higher prosperity. Of course, I understand what he wants to do. But if you have the whole pool, the whole world economy, and you have one, the biggest net importer of the world, telling the others you cannot export as much as you want it, that means the rest will be in problems, of course, because they cannot manufacture and not export as much as they used to. Then they have a problem. They will not sit there and just turn their thumbs, etc. They will retaliate, and they will also introduce tariffs. And then we have a trade war. And with the trade war, the economy will not go up, the economy will go down and weaken. And I think that is a major risk I see, because I do not believe that neither Europe nor China will agree right away to what Trump wants, and therefore, I think 25 could be a pretty harsh political battle in trade, and that could lead to many corporations saying, hey, wait a minute. We do not know exactly how the world will look like next year and the year thereafter. Maybe we should hold back with our investors. Movements and things like that. So it’s going to affect the economy. That’s one thing. The other thing that the Trump administration wants to do is mosque and Ramaswamy cutting of government expenditures. I think that’s a very good thing, structurally, but if you cut out money expenditures, you know, that’s somebody else’s income. And of course, I mean, he cut back. I said 2 trillion is too much. Maybe 1 trillion, long term, 1 trillion would cut 3.7% out of GDP, even if they did only half of the 1 trillion or one quarter of what they originally said, and I think in recent Wall Street article, must pedal back to about 500 billion. 500 billion is close to 2% if they cut out 2% of the budget of the expenditures. It’s very good, structurally speaking, but it is GDP down by the 2% from where it would be otherwise in the short term. So it in the short term, there are a few things that could really hurt the economy where the rosy picture that many are painting may not unfold, and where the average year for the stock market may lead to rather an outlier. I think we could see both extremes, above 7000 and below 5000 next year, and towards later in the year, and then in 26 I see the downside, the big downside risks. I don’t see the big downside risk early in the year. This will be a medium term correction, and you need time for a topping process. You need time. It usually takes three to eight months or so to complete the top and and that is a volatile period, and that’s what I think we are facing.
James Connor 42:10
Because you brought up trade wars and tariffs. I want to ask you about Canada, because Trump said he’s going to throw a 25% tariff on all things coming out of Canada. And this could set up a very interesting trade war between the two countries. At the same time, Canada’s GDP has been collapsing now for quite a few quarters, and the federal government just released its fall budget statement recently, and the federal deficit went from 40 billion to $62 billion what are your views on the Canadian economy, and do you think Canada can recover from what’s happening right now?
Felix Zulauf 42:49
Well, the Canadian economy is to one way, a natural resource based economy, and the natural resources have been in a bear market, in a cyclical bear market. And I think that is being expressed in the trade balance, etc. If I were Canada, I would tell Trump, if you want to tax us that much, we tax water to you. You know, Canada is, is very water rich and and in the US, there are some shortages of water. And if you provide water to Canada, I haven’t checked the details, but if you provide a lot of water to the US out of Canada, and you have plenty of it up there, then I would really retaliate by saying, Okay, if you charge us high tariffs on these and that we charge you on water that you buy from us, we charge you a much higher price. So this is the way things are going. I’m quite positive for Canada for the next cycle. As I said, I think in the next cycle, you will see that commodities will be dirt cheap. You will see that many of the industrialized economies have troubles. You will see that the political decision makers will come up with spending programs and infrastructure will be a major scene, including defense and things like that. You need a lot of minerals and metals and oil, etc, for all of that energy, for all of that. And I think you will see that you will have a run to the base in currencies, because there will be a devaluation race, because in a protectionist environment, you try to outsmart others by going cheaper with your currency and things like that and and all of that leads, for me, to a bull market in real assets instead of growth. And therefore. So I think Canada will do very well in the next bull market. Not so much in this bull market, which is getting late anyway, but in the next bull market, Canada is an attractive place to be. So there’s hope. Oh, def, Oh, definitely, definitely. I mean, Canada was not really well governed on the Trudeau. Trudeau is a socialist and, and he has subscribed to the World Economic Forum programs and all that nonsense and, and, you know, it’s time that he goes and that you have a more conservative person in power. And I think that will materialize eventually, and Canada is is a great country. It’s very resource, resource rich. It is self sufficient, wonderful place. And I think those places in a less peaceful world that I see with lots of turmoil in the transition from the old geopolitical order to the next geopolitical order, which we do not know yet how it will look like, is an interesting and attractive place to invest in. You touched
James Connor 46:15
on Europe earlier in the discussion, and the head of the European Central Bank, Christine legarde recently said she’s she expressed a lot of concerns about what’s happening with various countries within Europe, and the ECB also cut interest rates for the fourth time in 2024 but what are your views on Europe? I mean, Germany’s been in a recession now for, I think two years. We got ongoing issues in France. When you look at Europe as a whole, do you see any improvement in the coming year?
Felix Zulauf 46:46
No, I don’t. I think Europe has the wrong model. First of all, the mercantilist model of exporting as much as you can and importing as few as you can will not work very well in the new world that we are entering, and that that has nothing to do with Trump alone. It is just the pendulum is swinging towards nationalism and and the nationalism each country, and in uncertain times, each country begins to protect its own territory and its own economy and and therefore, mercantilism is very much vulnerable in such an environment. And the biggest net import, which is the US, is the least vulnerable, because if they import less, you know, even better for them, all the others are relative losers. Europe has the wrong model in terms of growing via exporting. That’s one thing. They have to create more domestic demand. Then they have gone extremely green. Green Energy, and it has led to the highest price of electricity in the world, in Germany and places like that, and Switzerland, etc. And economic activity is energy transformed into a product, basically. So energy is an important cost factor. And if you go to such an extreme, the Green Deal, it won’t work. Let’s be clear, it won’t work. We won’t get off fossil fuels for the next 50 or 100 years. I don’t see that. And when you go to an extreme and your energy price goes up, you lose competitiveness. That’s one thing. Then the European Union is run by some not very farsighted people. Let’s say it more eloquently, they have become champions in regulation, and a lot of that regulation is nonsense, pure nonsense, and they have built huge bureaucracies with that tight regulation, high energy prices. You cannot be a winner in economic terms, you cannot so what Europe needs is we need a swing to the right politically, and we need a program to deregulate. And it has to start in the EU. They need to become the champions, the world champions of deregulation, not world champions of regulation. And when they do that, then it will improve. Then they have to go to Russia and restart diplomatic ties and come to terms and have some of the Russian energy. And commodities coming to Europe and do trade with them. I think this whole war thing is nonsense, complete nonsense. It was from the beginning and and I think that could be achieved. And then you have cheaper energy, and then you have to work longer hours. You know, just recently, I saw a statistic that Switzerland is doing very well in the European context the economy, unlike our neighbor and biggest trading partner, Germany, but our people work 200 hours more on average, than the Germans. You know, 200 hours per year. And I think we have to get back to the point to understand that you have to earn your prosperity. It’s not God given. It doesn’t drop from the sky. You know it, it must be earned. And I think Europe has to go through a reawakening and a rejuvenation process. And I do not see any politician of the leading nomenclatura there is in Europe that has a good understanding of that. I think we will probably lose one full legislation, until a new generation of politicians come to power and introduce all those changes that are necessary. Look what’s happening in Argentina. I mean, we are not down where Argentina is, but how far down Argentina had to go to finally make a turn, and making the turn is very painful, and I have traveled very often to Argentina. I love the country, and I’m so sorry about how badly run the country was for so long, and now it’s a painful process. But you have the first fruits coming through. You have the first surplus the government has. You have inflation declining, etc, and and you know, we have to do the same at the higher level, of course. And you know it, it needs a political change, and it just changing one party to the other is not enough, because the guys that are coming to power in Germany do not have the right formula. They will lose one full legislation. So I’m not very optimistic about Europe in economic terms. Unfortunately, it hurts my heart. So
James Connor 52:41
you raise an interesting point about this whole shift to the right across the world. We first saw it in Italy. Then they went to Argentina. It just happened the in the US. It looks like it’s going to happen in Canada during their next election, sometime in 2025 Do you think this will be good for global growth? I
Felix Zulauf 53:00
think it will be eventually good for global growth, maybe not right away, because the process of the change takes some time, and that change is painful in the first period, but eventually it is good for the longer term and I think it will happen. You know, it’s the political game is always like that. The pendulum swings to an extreme in one direction, and then it swings back. And we have gone very extreme to the left, and it’s now beginning to swing back. And it’s not just right. I mean, Trump is not a far right person. He is far right in some in some ways, but he’s also a socialist in some other ways. You know, he’s very social toward the average Joe, etc, and he knows that he you can only get elected if you care for your people and etc, and I think the same will happen in some other countries, but we are not there yet.
James Connor 54:06
Well, I got one final question to ask you, Felix, before I let you go, and it’s on the country of Switzerland. You and I are both avid skiers. What’s your favorite place to ski in Switzerland?
Felix Zulauf 54:17
Oh, I, you know, I’m I still ski, but I do not travel very far any longer. I think the best slopes I have skied in Switzerland are Zermatt in the valley in the southern part of Switzerland, and and St Moritz in the eastern part of Switzerland. Those are the two places with the best slopes, Davos is also good, but Davos is a very commercial place, and is not as cozy as a village as is Zermatt or or St maartz. Well,
James Connor 54:52
that’s good. I will have to check out those places. Well, that was a great discussion, and I want to thank you very much for spending time with us today. A if somebody would like to learn more about you or the services that you offer or follow you online. Where can they go?
Felix Zulauf 55:06
You can find us at Felix zoolouf.com so just one word, Felix zulow.com and thank you very much, Jimmy for having me. It’s always a pleasure speaking to you, and I wish you happy holidays and all the best for next year. Happy trading
James Connor 55:23
once again. Thank you. Thank you. Well, 2025 is just around the corner, and if you would like to speak with a financial advisor about your financial future, go to wealthion.com/free after providing some basic information, wealthion will connect you with a better financial advisor, once again, That’s wealthion.com/free Thank you very much for being with us today, and I look forward to seeing you again soon.
