I do believe that this will be the root cause of the next big global crisis whenever it breaks out, probably sometime over the next 12 to 18 months or so. First of all, I think the Japanese situation is very dangerous because Japan’s tax revenues, when you look at the numbers, they have to use almost 50% to service their government debt—their Federal government debt. So if interest rates rise further, Japan is basically bust…I think this is a very dangerous thing that the Japanese are starting and I believe it will most likely be the trigger for the next big global crisis in financial markets and the world economy.
On a recovery in Europe:
I do not see an improvement coming. I do not agree with the official forecasts that there is a gradual recovery. Those that say so because they see an improvement in the current accounts [are wrong because]…these current account improvements we see in peripheral countries are really a reflection of the reduced imports side because of weak domestic demand. It’s much less because of a better competitive situation and rising exports. So, in that sense, this improvement in current account balances is very different from what we saw during the Asian crisis when the Asian countries really did bite the bullet. They let their currencies go down by 50%. They restructured. Some companies defaulted, etc. etc. And due to the competitiveness regained because of the reduced currency rate, they had an export boom. And current accounts improved because of export growth, not what we see in Europe, which is compressed imports.
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.
