February 16, 2012

Felix Zulauf: Rally Will End in March, No QE3 Soon

The rise in risk assets will last until the end of the first quarter, then declines eventually 
will set in.

And while he doesn’t see an immediate third round of easing by the U.S. Federal Reserve, known as QE3, monetary authorities here and in Europe are likely to continue to print money to stave off deflation, which will in the end mean higher prices for oil and gold.
I think the rally will continue into the end of the first quarter or maybe a little bit further. 
And this flood of money means my original scenario could be pushed out further in time.
I had been expecting that problems would start in the second quarter of this year, and 
there would be a correction. But now this cyclical rolling-over could be pushed out. 
From this summer to fall of 2013 seems to me the most vulnerable period for markets.

Investors should prepare for a long period of share value “compression,” one likely to last 
until the middle of the decade. This current one started in 2000, and will probably last 
into the second half of this decade. And it’s very similar to what you saw in Japan, with cyclical run ups and cyclical corrections. And these cyclical moves are usually triggered 
by government programs — both monetary and fiscal.

The U.S. Federal Reserve will try that gimmick when the economic numbers deteriorate, because central banks are in a hopeless situation. Everyone thinks they’re the ones that can save the system. But by printing money, you don’t make the world wealthy, you make a few people wealthy, and you increase the disparity in society. You push the top 20 percent further up, and you push the other 80 percent further down in prosperity. And eventually that will lead to a social backlash, which could be very bad. Such turmoil supports the price of USD, Oil and Gold.
In my view, gold is a currency. Central banks — in the United States and Europe — have no choice. They have to continue printing money to prevent their systems from collapsing, and this will debase their currencies.

Source: Australia’s Business Spectator

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.