December 8, 2023
By Steve Blumenthal
“Take a look at the prevailing view before every major inflection point, and it has always been wrong.”
-Felix Zulauf, Founder and CEO of Zulauf Consulting
If you were a reader of Barron’s before 2017, you know Felix Zulauf’s work. For 30 years before then, Zulauf was a regular fixture in Barron’s Roundtable, a well-known and highly respected annual forum where some of the world’s most prominent investors, economists, and financial experts discuss their views on the current state of the markets, economic trends, and investment strategies. Known for his exceptional foresight and wisdom, Zulauf’s reputation was built on his ability to understand and predict significant economic and market trends.
Key features of the Barron’s Roundtable include:
- Diverse Panel of Experts: The Roundtable brings together a varied group of leading financial minds. These experts often include fund managers, CEOs, economists, and other prominent figures in the world of finance. Their diverse backgrounds and areas of expertise contribute to a rich, multifaceted dialogue.
- In-Depth Discussions: Participants engage in detailed discussions about the global economy, individual sectors, specific companies, and general investment philosophies. These conversations often delve into complex subjects, offering insights into how these top investors think and approach decision-making.
- Market Predictions and Investment Picks: One of the highlights of the Roundtable is when participants share their predictions for the financial markets and their top investment picks for the year. These insights provide valuable information for investors and are closely followed by the financial community.
Overall, the Barron’s Roundtable is not just a forum for sharing investment ideas; it’s also a barometer of the mood and trends in the global financial markets, offering valuable insights into the thinking of some of the world’s most successful investors.
Today, plug your earbuds in, put your sneakers on, and take a 50-minute walk. I had the absolute pleasure of interviewing Felix this week, and I’m thrilled to be able to share our discussion with you today. If it’s too cold outside, curl up in your favorite chair. Same earbuds, same links. Below, you’ll find a brief, high-level summary and the link(s) to the discussion (YouTube or Spotify). (If you are reading this in your email inbox, click the large blue On My Radar button that follows). Otherwise, simply scroll down.
Here are the sections in this week’s On My Radar:
• Zulauf–Blumenthal Podcast Discussion
• The 10-Year Treasury Yield Weekly MACD Indicator
• Personal Note: Sunny Florida
• Trade Signals: Weekly Update, December 6, 2023
(Reminder: This is not a recommendation to buy or sell any security. My views may change at any time. The information is for discussion purposes only.)
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Zulauf – Blumenthal Podcast Discussion
I had the pleasure of hosting a podcast discussion with Felix Zulauf on Wednesday afternoon. You’ll find the link to the full video below.
In the meantime, here are a few high-level takeaways:
- He believes we are in a totally different macro environment than anything we’ve seen in the last 40 years.
- Felix is bullish on equities into the first quarter of 2024. He sees a potential end to the current uptrend in January or possibly March.
- He believes we are going to have a recession—likely in the second half of 2024 or sooner.
- Looking back at all the prior recessions, there is always talk of a “soft” landing—and there is currently resounding agreement among investors that we will have one. But in the last 50 years, we’ve seen only one soft landing, in 1994.
- As Felix reminds us in the discussion, when everyone is in agreement, something else is going to happen.
- He believes we will be on a rollercoaster ride in the equity and fixed-income markets for the rest of the decade—very big ups, very big downs, up again and down again, etc. He sees what he calls a “Grandaddy Bear Market” (meaning, down ~ 80%) coming sometime within the next five years or so.
- The period ahead is likely to be inflationary. Not deflationary despite the deflationary forces of debt and aging demographics. More juice injected into the system by the Fed and Congress will lead to a second wave of inflation that will be higher than the first—think 13% to 15%. Imagine what that means to the level of interest rates.
- Ultimately, “the bond vigilantes” will force the system to break, which will force governments to restructure the debt and entitlement programs. A crisis is needed for it to happen.
- We are in a war cycle. Wars are inflationary, involving protectionism, disruptions and changes in supply chains, etc. Felix and I discussed the deflationary forces of debt and demographics vs. the inflationary forces of protectionism, disruptions/changes to supply chains, and which force is likely to win. Hint: Inflation!
- For now, Felix believes interest rates peaked at 5% (referring to the 10-year Treasury yield) for the short-term cycle. He believes they’ll go down to 3.70%, and possibly 2.75%, before bottoming. This is due to a slowing economy/recession. (NOTE THE 10-YEAR TREASURY CHART THAT FOLLOWS BELOW.)
- In the what-to-own category, Felix generally likes hard assets, gold, oil, and real estate. He likes certain value-oriented stocks, noting that value plays, like high and growing dividend stocks, are starting to behave better. In a granddaddy bear market, asset prices will fall. You want to own good companies that will recover after the meltdown. He suggests investors learn how to time trends in the market.
- Avoid general index funds. The market has never been more concentrated on just a few names than it is today. They’ll correct more than the value stocks, which have been unpopular and under-owned.
- We talked about the weekly MACD indicator he often shares in the Zulauf Consulting institutional newsletter I subscribe to. MACD is a momentum indicator that does a good job of capturing market trends. Felix talked about the proprietary version he has used since the 1970s. He uses the same momentum indicator on all markets and discusses how he has learned the indicator’s strengths and weaknesses over the years.
- What’s ahead? Buckle up.
Click on the photo to watch the video version.
Click on the next picture to link to the full audio discussion posted on Spotify.
More about Felix Zulauf – Zulauf is the Founder and CEO of Zulauf Consulting, a boutique research and consulting firm that offers investment advisory services to institutional investors and family offices. He has over 40 years of experience in financial markets and asset management and has served as a member of the Barron’s Roundtable for 30 years. He started as a trader with Swiss Bank Corporation in the early 1970s and received training in research and portfolio management thereafter with several investment banks in New York, Zurich, and Paris. Felix joined UBS in 1977 as a Portfolio Manager of global mutual funds; he subsequently became the company’s Global Strategist in 1982 and the head of the institutional portfolio management group in 1986. In 1990, Felix founded Zulauf Asset Management AG based in Switzerland. He then sold the majority of the firm in 2009 and spun off a family office. Today, he manages his family wealth.
If you are interested in learning more about Felix Zulauf’s Investment Research service, please email Jennifer Mendel at jennifer@bluefoxadvisors.com.
(Reminder: This is not a recommendation to buy or sell any security. My views may change at any time. The information is for discussion purposes only.)
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The 10-Year Treasury Yield Weekly MACD Chart
To give you a feel for the MACD indicator, the following is a look at the weekly MACD momentum indicator for the 10-year US Treasury Yield. I post it each week in Trade Signals subscription service (not a recommendation for you to buy or sell any security).
Bullish trend signals are marked by green arrows in the lower section of the chart. Bear trend signals are the red arrows. The yellow area I highlighted is the target zone Felix discussed in the podcast. The 10-year yield closed at 4.13% yesterday, December 7, 2023.
My goal here is to give you a feel for what Felix is talking about in terms of navigating big ups and big swings in trends. He said his indicator moves a little more quickly than the popular ‘Weekly MACD’ indicator that follows. Also, he knows which other markets correlate or don’t correlate well with each other (move in similar ways or not), and that combined information helps him confirm the trend and trade accordingly.
Follow me on X (formerly Twitter) @SBlumenthalCMG
Not a recommendation to buy or sell any security. For discussion purposes only. Current viewpoints are subject to change.
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Personal Note: Sunny Florida
I’m up early writing you from sunny Florida. I came down yesterday for a dinner meeting in Tampa. It’s a quick in and out, and by the time this OMR hits your inbox, I’ll be 34,000 feet in the air on my way home to not-so-sunny and not-so-warm weather. Phila. December. Cold.
Golf is on the agenda this afternoon, and then I’ll sprint to the airport. I know, I know: poor Steve. I’m checking in lucky and happy.
I hope you have some fun plans to fill you up this week. We could all use a good dose of joy.
Please let me know what you think about the podcast.
Wishing you a great week!
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Trade Signals: Weekly Update, December 6, 2023
“Extreme patience combined with extreme decisiveness. You may call that our investment process. Yes, it’s that simple.”
– Charlie Munger
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