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The discussion opens with warnings about bond yields, currency collapse, and a coming systemic crisis. It then shifts into a sponsor segment about Ground News and how it compares coverage across outlets.
uh interest rates could go to 8 n% is that what you said which rates are you refering Bond Ys bond yields 10 years 10 year US treasuries 10 year us trases you know at some point they will probablytry to underwrite the economy and when they underwrite the economy they will go to yield curve control in the western world but wouldn't that prevent the uh the rate from going higher I mean why then then the currencythen the currency collapses then the currencies collapse and then you have high inflation and then you know soon or something has to give you cannot control currencies interest rates and the system sometimes later this decade I expect themajor economic crisis a very severe crisis uh uh a systemic crisis uh that we have never seen before in our generation and then the wealth will beone very quickly the US Labor Market continues to show further signs of
deterioration as evidenced by a sudden drop in job openings in October according to sources job openings fell to the lowest level in two years to 8.7 million the decline in job vacancies brought the ratio of openings to availableemployees down to 1.3 to1 compared to 2 to1 earlier this year the November jobs report is expected to show an increase of nearly 173,000 jobs with an unemployment rate of 3.9% ground news has been my go to sourcefor information because of how easy I can access multiple news sources at once it's an app and website that Aggregates articles from thousands of sources all around the world I'm happy to have them as a continuous sponsor becausethey save me time from having to Google different sources when I need to read multiple perspectives on a story with my vantage plan I can see in their Newsroom section that there are over 45 sources covering the story
with a majority of coverage coming from the center of the political Spectrum what's great is that we can see both local and international sources we can see here for example the Japan times and more with ground news it'seasy to compare the headlines to see how different Outlets are covering the story for example The Source Dallas Express tagged as right leaning says job openings dropped by 617,000 with the financial times tag to Center uh they wrotethat job openings dropped to the lowest level in two years not closing how much it dropped like the Dallas Express It also says the drop openings data offers more evidence that the US Central bank's efforts to damp uhDemand with high interest rates is working although officials insist cuts to rates are not on the cards in the near term if you subscribe through my link in the description down below at ground.
newsdavid Lin you can get 30% off their Vantage subscription for unlimited access and now we'll hear from our next guest regarding the macroeconomic landscape Felix zulaf who is the founder of zulaf Consulting Felix worked for decades on Wall
Felix Zulaaf is introduced and begins by assessing the US labor market and the meaning of job openings data. He argues the economy may surprise to the upside and that the Fed will not cut rates in the first half of next year.
Street as a portfolio manager at several large institutional uh hedge funds including at UBS Felix welcome to the show it's good to host you today thank you David for having me I'm excited to cover some topics on WorldMarkets I want to start with the US economy and then Branch out the global economy and then finally your portfolio allocation and sector allocation Outlook uh but first let's talk about uh what's happening with the labor market jobopenings in the US fell to a 28-month low to 8.7 million in October when you put this number into the context of a deteriorating labor market which is to say that the unemployment rate has now ticked up to3.9% up significantly from the beginning of the year what does this number mean to you I'm a little bit different than most in this industry and I do not wait the short-term high frequency data too highly I look
at Trends but the the data obviously suggests that employment is quite robust and um and real income is also growing and therefore it could be surprising that the economy in the coming months uh could likely surprise on theupside relative to expectations uh you know there is a very strong consensus out there that this is going to be a soft landing and the FED will cut rates um starting in Spring Etc and I disagree with thatI think the economy will do better short term or in the first quarter maybe into the second quarter and the FED will not cut in the first half of next year and uh there could be a bit disappointmentin the bond market we are currently seeing a medium-term decline in bond yields and it could decline to the 370 level for 10year treasuries or so but then I think we are in for some surprise and could bounce
back quite strongly I wouldn't even be surprised if it would go to new highs maybe at Fe 550 or something like that before declining then in Earnest uh into the second uh half of the 2024 year um whereit could be down to 3% plusus 25 basis points Felix generally speaking I'm not talking about this specific data point but generally speaking uh higher jop openings in the economy does that signal growth does that mean that ifyou have more job openings businesses are expanding and so therefore they're hiring people or potentially the other side of the uh coin is that if you have a lot of job openings there's a lot of slack in thelabor market uh productivity may not be very high because you know uh because of the slack so how would you generally interpret job openings well you have to uh uh look at all the figures in a context and
the context is obviously a very robust employment situation very low unemployment situation and in that context these number would suggest uh the economy is doing better than generally expected I want to talk about what happened uh over the
The conversation turns to gold’s rally, its link to geopolitics, and the shift of physical gold away from the West. Felix argues the world is moving from a US-led order toward a more unstable multipolar system with rising conflict risk.
weekend uh the rising gold price it spiked to uh to a new all-time high on the back of uh an attack by the houthis on US Navy ships now the day after on Monday it came back down andactually lost any all of its Gam Felix was this a reaction purely to uh geopolitical tensions that arose for less than 24 hours over the weekend or is this the beginning of a longer trend of risk off Ithink the gold market uh is changing its character uh whereas uh in the past when gold ried it was usually when real interest rates declined uh this recent rally that we have seen from 1800 or so or evenyou a little bit lower even uh was really a rally together with Rising real interest rates which is a new phenomenon and I think this rally in gold is more to geopolitical factors than due to monetary factors the
monetary factors will kick in later uh if the fed eases and cut rates uh uh probably sharply in the second half of 24 that's when the monetary factors will kick into gold the 8year cycle in gold which sheis very pronounced and has a good track record Falls for a low in Gold for a cycle low in gold in 24 I said a few months ago that uh we will probably have the low sooner a yearahead of the theoretical low and then we R it and uh I think this is the early stage of another bull cycle in Gold into the later part of the 2020s and I would not exaggerate the shortterm tremendousuh moves up and down of course a short-term reversal like what we have seen is usually not very bullish shortterm it usually speaks of an ending move but I would not uh I would not overweight that I think
gold is in a preparation for a big bull market in the next few years first due to geopolitics gold physical gold has been moved from the West to the east or from the Western industrialized economies to the globalthe South economies because they are turning away step by step from the US dollar as a reserve currency uh the US dollar has been misused as a political weapon and this derates the US dollar and upgrades gold asa store of value for reserves of central banks in other parts of the world that is not necessarily a close friend to the US generally speaking would would you say that geopolitical tensions are rising around the world tothe point where it becomes uh a necessary risk to watch for investors oh definitely what we are seeing is you know the old world order of a uni poo us Centric stable world order with the US on top
of it of course uh that has crumbled this is the past it's gone we are in a transition phase to a multi-polar order which we do not know exactly how it will look like so we are now ina period of disorder with a top dog very weak and because the top dog is very weak you see all sorts of conflicts popping up coming to the surface be Armenia aaban Serbia Guana Gaza um um Ukraine Etcand I started writing about the coming conflicts and the and Wars in 2018 when people laughed at me and and we see that happening now and I think we will see more war and the risk of broadening Warspulling in the big guys is really On The Rise when you say the big dog is weakening I'm assuming you're referring to the US what does that mean how is it weakening well uh the US is just not
respected in the world as it used to be if uh if the foreign minister of the US goes to Saudi Arabia and the ruler there let him wait seven hours in front of his office door uh that showsdisrespect when blinkin goes to Turkey uh erdogan does not receive him the Prime Minister does not receive him the foreign minister does not receive him the guy who eventually received him was the deputy mayor of Istanbul and thatshows you that the US has lost a lot of respect uh in the last few years and this is not just because of the current Administration it is uh because the US uh has behaved very dominantly for manydecades you know there were uh the US has organized over 80 regime shifts in the world uh since World War II uh and some even in democratically uh uh Democratic countries and nobody said a word as long as
it was a stable order and discipline was in case but that has changed now and therefore people are speaking up Latin American has turned more towards the Chinese Africa is uh in Chinese territory now uh and and theworld is changing it's undergoing dramatic change and the markets are not taking notice yet but why do you say we're shifting to a multi-polar world why can't the US be replaced by another superpower therefore another hedg money inthe in the global Arena could that could that be possible well it could be possible but no other country or Nation who could fill the shoes of the us at the present time is around uh the China isnot strong enough to do that and China doesn't want to do that uh China wants to have its influence on the world but he doesn't want to play the role of the world policeman as the US did in
the past and therefore I think it's more likely that we will end up in a multi-polar world and it's actually up to the diplomats to work that out and so far we have very weak diplomats or the diplomatsare simply not uh around these days uh uh and therefore the risk is high that we get to the New World Order while Wars uh during the uh Cold War we had a arguably bipolar World there were fewerarmed conflicts uh around the world than than today and before the Cold War uh history has taught us that when there is one or only two superpowers in the world uh there are fewer armed conflicts when there isa multi-polar world when everyone is vying for power that's when we see more kinetic Wars in more Regional um conflicts uh is that what's going to happen we're going to see uh a shift towards many different pockets of
power as opposed to just a bipolar world like the US versus the former USSR no I think it's a it's a multi-polar world we do not know yet who the major players will be China is obviously one theUS will remain one of the strongest if not the strongest Nation but it's impossible to see a world where 4% of the world population can dictate to others how they have to behave and not even 177% China uhof the world population could fill that role it's it's I don't see that well the 4% of the population controls most of the world's wealth so unless there's a shift in wealth the shift in power won't happen rightwell the wealth shift can happen very quickly you know let's say we have uh sometimes later this decade I expect a major economic crisis a very severe crisis uh a systemic crisis that we have never seen before in
Felix explains why he expects a severe late-decade financial crisis driven by leverage, fiat money, and central bank intervention. He also walks through why he expects bond yields and the dollar to rebound after near-term weakness.
our generation and then the wealth will be gone very quickly it's all paper wealth tell us about that tell us about this economic crisis that we haven't seen before what is this going to look like how will howwill it unfold well I described the 2020s as the year of the roller coasters in the financial markets and uh you know our system is a fiat currency system and in each cycle the debt and The Leverage inthe system goes up and that means in each cycle central banks have to inject more liquidity to uh uh prevent the system from breaking down and to rejuvenate another cycle and uh and I think that will happen sometimesin the second half of 2024 and then we start the next cycle and the next cycle will be led by um equities and commodities the commodity price you know there is an underinvestment in the commodity sector and about
two three quarters of the Commodities are controlled by the bricks countries and in the conflict between uh the global South against uh the G7 uh you know they will use that weapon to make life more difficult for theWestern World and therefore I see commodity prices rising sharply together with Equity price is from let's say summer 24 into late 25 early 26 and that means that inflation rates will rise very sharply too they will probably gohigher than what we have seen in this cycle because we are on a secular rise in inflation and in interest rates and and it goes in cycles of course and the the next rise will then probably produce umtreasury bond yields for CH let's say 8% or even higher and that will uh that will bring on a disaster for our system that is overleveraged and then and then and that would trigger what I would call a
depression but we will not have a depression like the 1930s because in the 1930s we had the setup of a stable gold anchored currency system and they let the the economy go down but the currency stayed solid Ithink the next time we have a fiat currency system they will underwrite the economy and let the currencies go down which will uh lead to probably currency reforms and major defs defs by governments etc etc so I thinkgo hell could break close in the later part of the 2020s uh and that's what I call the roller coaster up and down in a major way and that's why investors should be aware that investing in a passiveway and just sitting and holding tight with your investments will not work in this decade Felix you mentioned that uh interest rates if I didn't hear you wrong uh interest rates could go to 8 n% is that what
you said which rates are you referring bonds Bond yelds so 10 years 10 year US treasuries 10 year us treasuries you know at some point they will probably try to underwrite the the economy and when they underwrite theeconomy they will go to yield curve control in the western world but wouldn't that prevent the uh the rate from going higher I mean why then the currency then the currency collapses then the currencies collapse and then youhave high inflation and then you know soon or something has to give you cannot control currencies interest rates and the system that's can you walk us through the logic one more time of why the 10year will rise to89% people are anticipating the FED to cut rates next year uh that should bring down the short end of the curve twoyear how how is that going to affect the 10year well I I said we will have a
recession probably a mild recession we will have much lower much lower stock prices uh let's say in the low 3,000 in the S&P in the later part or late summer second half of 2024 for and uh and thenthe fed and other central banks do what they always do when when you have that set up they uh inject liquidity in a major way and prevent the system from melting down uh and things like that and theresult of that is that the liquidity flows into all sorts of assets because the real economy cannot uh you make use of all that money and uh and short rates go down of course bond yields will probably notgo down they will they will probably go up then they may go into yield curve control it's obvious that in such a scenario the price of oil will go to $150 $200 without geopolitical problems if you have on
top of that geopolitical problems it could go go much higher and that gives you an inflation rate of way over 10% uh so uh that in that scenario 10year treasury bonds will not stay at 4% uh are youare you considering that the money supply I'm talking about M2 has been contracting uh shouldn't that help with bringing down inflation well you have money supply and you have velocity the speed at which money supply turns over inthe economy and I think there are all sorts of structural changes and it's difficult to interpret and read the money supply uh uh the way you could in a stable environment this is not the stable environment you haveinstitutional changes you have U uh an increasing part of the lending in the economy is done by private debt uh uh companies and and less so by the Banks and these are all changes that feed into that money
supply number therefore I would not take that at par value and the Wall Street Journal article several months ago of a crash coming uh soon and that was a few months ago because of money supply numbers I thinkwas wrong okay uh shifton gears you mentioned that we may go into a recession next year in the US you're based in Europe right now if I'm correct is Europe already is most of Europe already in a recessionright now I'm in Florida but I'm I'm usually I'm I'm based principally in in Europe uh Europe is a borderline of recession uh and it differs by country of course uh Spain and Italy are doing better Germany isdoing uh very badly uh but part of it is um uh self uh self organized in a way okay if you were to factor in economic growth differentials between the US and its peers also interest rate differentials between
the Us 10year and other uh treasury yields around the world uh would you short the dollar right now no certainly not I think the dollar has stopped for the cycle in September of last year and it has gonethrough two medium-term declines it is now in the later stages of the second medium-term decline uh it could go a little bit lower it could go to 100 the dollar Index or even 96 or so uh but whenthis ends and I think this will be in the first half of q1 uh I think the dollar will attempt another rise and uh and and that goes hand inand with I said about the economy and the potential
The discussion covers commodities, oil, inflation bottlenecks, and why Felix expects a weak global economy but rising prices later. He then outlines a cautious portfolio stance, preferring cash and short exposure to overvalued US equities while watching for a future buying opportunity.
risk that bond yields could surprise uh the uh uh pronounced consensus of declining Bond yelds okay uh now you mentioned that uh Commodities uh will do well can you just specify which Commodities you're referring to which will performthe best I think it's the whole basket of Commodities the best uh performance will be be achieved by those where Russia is a large producer I think and where some of the other bricks countries are uh large producersI think oil will do very well I said when uh uh Russia entered Ukraine in uh February I said in March when we had the spike in the oil price to $130 I said we go down to $60uh we are 69 uh today I understand we could go to 6055 sometimes in the first half of next year and then I think oil from that level has a chance to Triple or quadruple B based on what
the supply crunch based on the fact that you will then have a normalization due to the stimulation and you will have a situation where the opic Plus countries control the supply and uh you know Europe is completely dependenton Middle Eastern Oil uh the US is uh sort of destroying its Shale operations uh the Biden Administration has pursued a completely wrong strategy on energy uh the Green Wave was uh uh a nonsense that really uh reducedinvestment in the oil sector and in the gas sector and therefore we will have a shortage going into 25 and 26 yeah are you not concerned about a global slowdown killing uh the demand for oil that's what you'rehaving now you know the world economy is weak uh the world economy is weak you should not uh uh assess the world Economy based on the US the US is uh the best uh horse in the stable uh
or the least dirty shirt in the laundry but Asia is weak uh China is weakish and has structural problems and he cannot go back to the growth rates we have seen in the past 20 years that's impossible uhEurope is structurally weakened for all sorts of reasons wrong policies demographics Etc and the US is the US is relatively strong because the US have has experienced the strongest fiscal support of all of these nations but but butgoing back to my question don't you think that a weakening global economy uh will will weigh down on demand hence weighing down on the price of oil that is what we that is what we are seeing the worldeconomy is growing at 1.5% and in the past 50 years 1.5% in real terms was a recession and uh and that's why oil has declined from 130 to 69 right so already and it goes further if you think
inflation will return first of all when do you think it will return in the second part of the question what's the Federal Reserve going to do about it uh I think we could see some pop shortterm depending onsome distortions like the Panama Canal uh there is not enough water on the lake in the lake right now and the sheeps are queuing up uh there is a problem with the Su Canal due to the hooes attackingships in the Red Sea and therefore ships are re-rooting and this could all lead to bottlenecks in uh in Goods prices and and and could lead to some Pops I think cyclically inflation will bottom out next year andthen rise for a number of years uh I think very short term due to the bottleneck problem I mentioned we could see some Pops that could surprise so is the Fed done raising rates then the FED will um
is probably done raising rates but it will not cut in the next six or seven months I do not expect the FED to cut rates in the first half and that will be a big disappointment to the Bullsyeah because the markets the CME fed watch was pricing in a significant probability of a cut by March so you're right that that is you know kind of that will not that that not that will in my viewin my way of looking at the world that will not happen uh right so given your view of the world then what is your preferred uh portfolio allocation into 2024 you have to be very flexible right now I'mvery light long equities into the first quarter and I cannot say whether the high will be in January or March uh but I'm looking for an important top and I think breaking to much marginal new highs will be
a trap and uh and you there will be a great hurrah in the Medias and it will suck in more more money from the sidelines Etc and then I think the surprises come in the bond market uh andin the economy uh and and then you have a decline coming in the stock market and because the American indices have been the outperformer for 15 years and the concentration of the number of stocks is more extreme thanever in the history of the stock market I expect that these stocks will decline sharply because they are the only ones people can sell because they are overweighted and over concentrated in these seven magnificent stocks and and thereforeI think for these technical reasons the decline in the stock market could be much sharper than economic numbers would suggest well why do you think the stock market will decline after another rally in other words why do you
think there's going to be another high before this decline happens because my indicators say so okay can you know I I I I I look at the first of all I think the FED is making a mistake bybeing too easy I think the FED is underestimating uh the um or or has been overestimating ex excess reserves in the system Bank Reserves and I think it's adding money uh over the over the year end and thisis like in 2000 sort of uh a liquidity push into January and then it fades because then the FED has to step back and reassess the situation and if I'm right on what I said about the economy theywill be rather tighten in liquidity not hiking rates but tightening liquidity then doing elsewhere and and when that happens and momentum indicator show a tiring of the rally and uh and breath Etc I'm waiting for the Sal signal
and when I see the Sal signle I will go short is there a particular us Equity sector you prefer for next year oh on the short side I prefer uh the Magnificent s or the Fang stocks or theNASDAQ 100 yeah anything on the long side no I uh I when the market goes down as much as I expect uh I have no interest to be on the long side I'm not smart enough to figure outwhat goes against the trend so let's let's say you're right and then this this downtrend happens what would you do are you gonna rotate into another asset or were you just were you just sit on cash cash cashI was sit on cash I may trade the bonds uh you know if the bonds have another Spike I will enter the bonds but for me the bonds are a trade and not an investment the the the stocks
will be you know the opportunity will come once the stocks have declined sharply and all the ingredients of pessimism and what you see at the bottom are around and then I want to go along because I think thenext rally up goes to New highs so maybe 6,000 on the S&P is there a uh is there a bottom that you would look for uh once that bottom is reached you would be more comfortable getting back intothe S&P yes absolutely the bottom should be preferably below 3500 okay W that's a big decline from current levels uh now uh Felix what about Emerging Markets people are talking about India Rising uh India's population is now theworld's largest uh potentially that could be the next China in terms of economic growth what do you think potentially India as far as I can remember India has always been the land end of the future and it probably
will remain so uh obviously they have big positive they have the English language they have the British law um they have a growing population and this all speaks for further progress but they are not as disciplined and aswell organized as the Chinese have been therefore progress will be much slower and the market the market is pretty rich um and foreigners can only invest in India via a few selected funds that have permission and therefore Iwould not I would certainly not do it at the present time if we have a wash out as I expect then India may be an important uh an important market and emerging markets in general I think uh andforeign markets also will begin to outperform in the next cycle the US Stock Market because I think the cre craziness about the Magnificent 7 is rather smelling of an end period of an era rather than the beginning of
Felix gives his view on India’s long-term potential, Bitcoin as a speculative asset, and the limits of the efficient market hypothesis. He closes by describing the contrarian mindset he believes is necessary to outperform markets.
a new era and uh and and and last ass class I'll ask you about is is Bitcoin people some people have said it's possibly the new digital gold it's the new Safe Haven to go into if in factthe economy falters and the stock markets collapsed do you share that view I'm not sure you know I'm probably too old to be too excited about Bitcoin I do not understand what the intrinsic value is I understand theconcept of course uh and uh and I think the recent uh permission by the SEC to launch Bitcoin ETFs by some of the large investment Banks gives you the next generation of potential buyers and in a limited Supplyenvironment that is bullish so uh uh I can see it going up further but I would be very careful if the stock market tops out in the first quarter be aware that Bitcoin can also go down not just
up final question you've had uh many many decades working on the buy side and many large institutional hedge funds I'd like you to address the efficient market hypothesis I've interviewed Eugene F who is a Nobel Laurette uh whowas one of the pioneers of this hypothesis which basically states that markets are efficient it's very difficult if not impossible to consistently beat the markets over a long extended period of time is that true it's very difficult andthe majority can not do it I agree with that but there are always a few guys out there who have proven that they can do it and uh I recall as a young guy I was sent over whenI was at UBS I was sent over to Wells Fargo they were the leaders in modern portfolio Theory at that time Bill F and and and those guys and Bill Sharp and um I attended a seminar and looked
at it and I came back and I said it's no good for us I do not believe in it what what what what part of the you have to have you have to have a Time Horizon of 30or 40 years that it may work and first of all I'm too old now and I want to have a shortterm excess not hoping for long-term excess and then get frustrated if it doesn't show up the U smallminority of fund managers who consistently beat markets what are they doing that other people aren't they have a special Gene which is the contrarian gene they uh can be lonely at tops and at bottoms you are lonely uhthe uh crowd psychology works against you uh you are locked up you cannot make a decision in a committee at Extremes in the market you will never succeed because you will always walk away with a compromise you have
to be a lonely wolf uh and you have to like that situation uh and I in my career whenever I felt lonely and I got push back from all others around me I knew I was on the righttrack so you have to have a special personality very critical mind and uh and U uh and contrarian Gene a very pronounced contrarian Gene all right well Felix wonderful discussion where can we learn more about your or fromyour critical mind where can we uh read your work and learn from you uh you can go to uh my homepage Felix z.com uh or write at info Felix zola.com and um our marketing people will take care ofit excellent well I appreciate your time uh Mr Zula best of luck to you and your uh research uh happy end of the year and we'll speak again soon thank you it's been a pleasure David thank you for
having me all the best thank you very much and thank you for watching don't forget to subscribe and like this video and follow Felix in the links down
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