October 28, 2013

Felix Zulauf: "The people are driven into shares"

Exchange Professional Felix Zulauf comes down hard on the Fed to task.He sees their credibility damaged. Due to the negative real interest rates there is a facility emergency, was driving people into shares.

The Fed does not dare retreat from expansive monetary policy - the reason is the continued high unemployment led in the United States. Has the Fed acted reasonably or negligently, in your view?

Of course it is negligent, because the governments are thereby relieved of the need to make the necessary structural changes in budgetary policy in attack. Furthermore, the trustworthiness of the Federal Reserve has been damaged - this could also depress the dollar.

At the beginning of the financial crisis, the policy of cheap money was the medium of choice to protect the market from total collapse. Meanwhile, it has become a self-perpetuating. The mere prospect of an end to the flood of money has recently been added to the world financial markets in turmoil: Around the globe, increased interest rates. Are the banks?

Into the trap function of "lender of last resort" in a crisis was absolutely right. But after that, the central banks have gone through an irresponsible monetary policy in a tricky situation. Fed Chairman Alan Greenspan has begun in the late eighties this policy, Ben Bernanke has continued it. About the currency correlations, the central banks have necessarily adapted the monetary policy of U.S. coinage in the rest of the world. This results in a global money creation has revealed attracts the great dangers to themselves - for example, a credit bubble. This insane liquidity seeks her own way - the banks have no influence on it. In the past five years there has been an enormous cash flow in various emerging markets - rising real estate prices, rent increases, declining purchasing power and exports are suffering the consequences there. Accordingly, an economic slowdown is now used there, which bears the face of incurred credit bubbles large risks.

How do you assess potential risk of inflation in the face of this enormous monetary expansion?

Politically, we are currently faced with a very dangerous development. The monetary inflation favors those who have great wealth, because they can buy the values ​​that have risen in price: stocks, real estate in prime locations, art objects, etc. On the other hand, the general wage of the average citizen - particularly in the industrialized countries - by the massive globalization in recent decades very moderately. Due to this lack of purchasing power, we currently have no great while inflation in consumer products because the people do not have the money to push the prices up there. However, the citizens suffer from the negative real interest rates - small fortunes are tied step by step.

This leads to more populism in politics and in the long term possibly to split the country. Often, this gave rise to a higher market regulation and intervention in private property. Economies are thereby distorted - the bottom line is less freedom for the markets and the people.

In the U.S. last week was ushered in the reporting season. In retrospect record profits in the books. Do you think that the companies on the stock exchange can not take the issue of action, or will continue to influence political issues such as the budget dispute in the United States or the central bank policies, the rates of interest?

Global economic growth is really low and I believe will continue to slow. In the U.S., it is still best among industrialized countries with more than two percent. In emerging markets, however, it weakens continuously. Accordingly, the earnings performance of the company will not be intoxicating. Especially the multinational companies that are heavily involved in the emerging markets must prepare for bitter disappointments. But quite some time now no longer stock prices reflect the income of the business - this would be so, then the shares have in the past twelve months are not allowed to rise.Investors see but no alternatives. We have a system emergency that drives people into shares due to negative real interest rates. The monetary policy of the central banks unleashed heated in addition to the markets. The pitcher goes to the well until it breaks.

How do you evaluate the risks in Europe?
I do not share the hopes for an economic recovery in the European periphery absolutely. There was now a slight stabilization at very low levels. There is no recovery in sight. The governments of these economies have no room for simulative fiscal programs because of high debt. Some investors - particularly from the United States - rely on the mantra of Mario Draghi, the euro will be rescued at any cost, and invest in European values, which are slightly cheaper on average than U.S. stocks. But this money is quickly gone when the problems of the euro crisis again put in the spotlight.

Which regions or sectors are you currently interesting?
The Japanese stock market has relatively well-considered the lowest risk and more upside potential than downside risk. The Japanese had been created primarily in bonds. In a deflationary environment, this was a good thing. Since last fall, however, a different policy is made ​​in Japan. The central bank will draw on a large scale more money, these liquidity flows finally into the equity markets.
Otherwise you can long-term investors currently advising people to buy from the default values ​​in the United States, Germany, England, Japan and Switzerland, in good and have worked successfully in bad times. Stocks such as Nestle , Beiersdorf , Nike and Johnson & Johnson will return my opinion, over the next six to nine months in the course a bit, but there may be collected in the long run.

How do you currently populate your personal vault?
For me, there are currently only a portfolio strategy - a very high diversification with stocks, gold , real estate and cash. The latter, to be able to buy shares for corrections in the coming year. Gold can fall from my point of view maybe ten percent, but the large cyclical correction has been well. Then gold could hindümpeln a few months ago and forming a bottom. After the outbreak of the next big problems, probably as early as next year, gold will start in my opinion a great recovery.

Felix Zulauf was born 1950, and is the owner and president of Zulauf Asset Management, a Zug, Switzerland-based hedge fund. Felix has worked in the financial markets and asset management for almost 40 years. Mr. Zulauf has been a regular member of the Barron's Roundtable for more than 20 years.