January 14, 2012

Barron’s Roundtable 2012. Historical Returns. If one country exits the euro, all hell will break loose.

The banking system goes bust. Assume Greece won’t repay anything, or at most 10% of its total debt. It is not just the government but the private sector that is bust. That means banks in other countries will be in trouble, which means they will be nationalized. Governments won’t have the money to pay for this, so they will assume even more debt. That is the chain of events I expect in 2012, and if you believe it won’t affect the U.S. you are dreaming.  The estimated notional value of the over-the-counter fixed-income-derivatives market in Europe is estimated to be about 60 trillion euros. There are many links to the U.S. banking system, although we don’t yet know who is positioned how. If one country exits the euro, all hell will break loose.
The world economy will experience a brutal slowdown. Deflationary forces are going to strengthen and commodities in general will decline. You can buy oil to hedge a decline in base metals. Gold started a cyclical correction within a secular bull market last summer. The first wave of selling is ending now. Gold has to be bought some time this year, probably in the second half, below $1,600. Then the monetary authorities will load their guns again and print more money, which will make investors buy more gold. The gold market is so tiny that when people want to shift just a small piece of their wealth into gold, the price flies to new highs.

Annualized Returns: 2002-11

Felix Zulauf  -25.1%
Annualized Returns: 2005-11 

Felix Zulauf23.5%

We should mention that these figures are somewhat crude, as they only reflect price appreciation and assume an equal allocation across the picks with a fixed one-year holding period. They do not include picks from the mid-year Roundtables.
Regardless, the returns are mighty impressive. To put the percentages in context, if you had spread $1000 across Felix Zulauf’s picks in 2002 and then rolled into his new recommendations each subsequent year, you would now have $9423. That is almost 10x the amount you would have if you did the same with the S&P 500 ($982)!