"The Risks Are Very High" Swiss Billionaire Warns "Global Financial Markets Have Never Been This Distorted Before"

Tyler Durden's picture

Submitted by Frank Suess via Acting Man blog,

Risks and Opportunities

Investors started off 2015 with a slow global economy, low oil prices, a strong Dollar, and a deflationary Europe with great uncertainties on the progress of the US economy and the recent launch of Europe’s quantitative easing. The question is, what opportunities lie ahead? This article highlights the main topics covered in an interview between Mr. Frank Suess, CEO and Chairman of BFI Capital Group, with the globally renowned Swiss fund manager, Mr. Felix Zulauf. Mr. Zulauf currently heads Zulauf Asset Management, a Switzerland-based hedge fund and has forty years of experience with global financial markets and asset management. He has been a member of the Barron’s Roundtable for over twenty years.



Felix Zulauf, Swiss fund manager and long-standing member of the Barron’s roundtable


Frank Suess: Felix, first I would like to thank you for taking the time to speak to us. You are a renowned investor and fund manager with a solid track record over the past 40 years. In those 40 years, you’ve encountered many highs and lows in financial markets and business cycles. What do you think about the current cycle we are in?

Felix Zulauf: The current cycle is very unusual, because never before have we seen authorities, central banks in particular, intervening on such a large scale and pumping so much money into global financial markets. Hence, global financial markets are more distorted than ever before and accordingly, the risks are very high. Investing becomes very difficult in such an unprecedented environment, as it can’t be compared to previous situations.

Frank Suess: When you look at our financial markets today, what would you consider are the most alarming themes? And how can they affect the current situation?

Felix Zulauf: Global demand has weakened due to structural reasons. This is a situation that cannot be improved by pumping liquidity into the system. Zero or even negative interest rates have distorted the valuation and pricing of virtually all assets. We know that the longer a distortion prevails, the more investors get used to it and it becomes the “new normal” to them. That’s where the problem lies!

I see three potential threats:

1) Inflation and bond yields rise and begin to prick asset bubbles;


2) The world economy gets hit again by more deflation due to a weaker Chinese currency that would reinforce deflationary pressure, dampen pricing and corporate profits and finally the real global economy; and


3) Asset prices continue to rise and finally exhaust on the upside at very high and unsustainable valuation levels.

In my view, #3 will be the most likely outcome.



A potential source of trouble: the yuan – click to enlarge.


Frank Suess: Central banks, with the US Federal Reserve in the lead, have embarked on a series of quantitative easing and credit stimulus packages. Particularly since the crisis in 2008, central bank influence on financial markets and the global economy has reached an unprecedented level. What is your view on this? Has this huge market intervention been justified? Will central bankers really be able to steer the global economy toward sustainable growth?

Felix Zulauf: Markets are the best capital allocators and capitalism works if the authorities let it take its course. Had they let markets correct all the excesses in previous business cycles instead of printing more and more money, the world would be in a much better shape today. But our authorities had the dream to smooth the business cycle by not allowing the markets and the system to correct itself. It is difficult to correct this in a painless way, which is what the authorities are trying to do. That won’t work.


central bankers

Assorted central planners – no painless way out


Frank Suess: How do you see this affecting accumulated wealth, particularly in the US? You were previously quoted as saying that “it will be a trader’s dream, but an investor’s hell”. Could you please explain to our readers what you mean with that statement?

Felix Zulauf: My hunch is that the US market will not make much progress this year but rather go up and down. This may be good for talented traders but bad for investors holding stocks that perform more or less in line with the S&P.

Frank Suess: Following the Americans, and then the Japanese, Europe has now joined the “QE bandwagon”. And, European stock markets, in general, currently look more reasonably priced than those in America. Should we now reallocate a bigger part of our portfolio into European stock markets?

Felix Zulauf: On a relative basis, European markets are now higher priced than in 2007 versus the US. But cyclical forces remain in favor of European stocks due to the highly expansive ECB policies. Europe has zero interest rates or even negative rates in some cases. I wouldn’t even be surprised to see German 10-year Bonds going to negative yields (they are 0.25% at present). There is plenty of liquidity around and the banks cannot lend it out. But still, Draghi wants to flood the market with more than one trillion of newly printed Euros. That is insane! The rationale: Weaken the Euro even further to help the structurally uncompetitive economies like Greece, Italy or France. That is all a very far cry from sound central banking, of course. For a while longer it will be bullish for European stocks, particularly for German equities, as they had already performed well when the EUR/USD was trading at 1.40.


10 yr. yield, Germany

10 year Bund yield – just below 20 basis points as of today – click to enlarge.


Frank Suess: The slump in the oil price has been a major topic since last summer. Factors include a drop in global manufacturing, America’s increased production of shale oil, lower production by OPEC members. What is your interpretation? And where do you expect oil prices, and possibly commodity prices, in general, going forward? Who are the winners and losers here?

Felix Zulauf: The commodity cycle peaked in 2011 and I assume the bearish trend will last another few years. Oil’s decline is part of that down cycle. Demand and supply factors are at work here. Oil’s market share of total energy has been declining for some years. The Saudis want to change this by having a lower price and want others to cut back on production. On the demand side, the world is getting more and more energy efficient (the automobile sector is an example) and therefore demand is now rising, but at a slower rate than the economy. The winners remain the energy consumers, in a broad sense, and the losers are the energy producers. That relates to individuals, companies, industries and national economies. But of course, energy is always only one component of the whole investment landscape.

Frank Suess: Over the years, you’ve had great exposure to Asian markets, particularly Japan. Many eyes are now set on China. The Chinese are confident they will report strong growth numbers of 7% this year, while many analysts disagree, saying that it is unachievable on low export figures. What do you make of the current performance of the Chinese economy and its impact on Europe and the US?

Felix Zulauf: China’s investment and credit boom was the biggest in recorded history. It peaked a while ago and is now in a downswing. After such a boom, the economy usually slows for 5-7 years and that is what’s happening in China. 7% growth is a joke; I would rather say it is now beginning to fall below 3% and won’t stop slowing for several years. China will be forced to help the banking and shadow banking system to digest the fallout of the previous boom and that means it will become more and more expansive in its monetary policy. In turn, this will weaken the Chinese currency. But China is moving slowly – which reinforces the slowdown – because it is afraid of a big wave of capital outflows that could create a shock to the banking system. Hence, they play down problems and move slowly. But eventually, the currency will weaken further. Once the Renminbi weakens by 10-15%, it will weaken prices of globally traded goods once more. In turn, this will dampen inflation further as well as revenues, profit margins and profits in the corporate sector around the world. When this happens, many equity markets may realize that the “emperor has no clothes”. In other words, China is key to the rest of the world.

Frank Suess: Greece is on the brink of collapse and possibly exiting the Eurozone. Negotiations are still ongoing, and the situation is still developing. Do you see a way out of the Greek leverage situation? In your view, should the Greeks stay or exit the Eurozone? And what is the best course of action for both parties, in your opinion?

Felix Zulauf: Of course, Greece is bust – like several others. But as long as the fiction that everything is okay and financing will be provided remains, the world doesn’t worry. My hunch is that the percentage of those in European politics that are fed up with Greece is rising and therefore it is only a matter of time until Greece defaults. A major restructuring and reform with Greece staying in the euro zone will be very difficult to achieve because the ECB will hardly provide the capital necessary for the refinancing of a restructured Greece. Hence, an exit may happen and the Drachma could be reintroduced with a value that is perhaps 50-70% lower compared to today’s currency. At that time, Greece has a true chance to recover. However, this would set prejudice of exiting.



Greece’s stock market has declined precipitously since 2007 – click to enlarge.


Frank Suess: When the SNB removed the cap on the CHF in January, did you see it coming? How would you evaluate this decision by the SNB, noting that only days earlier they said they would maintain the cap? Can we expect more of these shocking decisions in the near future and why so?

Felix Zulauf: Well, I was pretty sure they would eventually separate from the ECB policy, but had rather expected it to happen sooner. As a policymaker, you cannot tell if the truth could jeopardize your own policy. That is part of the game authorities must play. Well, we could see capital controls of some sort in the years ahead, because it is unreal to expect that all players are prepared to accept what other nations are trying to do at their own expense.

Frank Suess: What markets would you consider the most positive or negative? What investment opportunities would you say could develop in the course of the year that one should take advantage of?

Felix Zulauf: All equity and currency markets are pretty extended, at present. And many of the bond markets are as well. Hence, risk is high as assets are priced off a zero interest rate policy. I said last year that currency movements will play a key role. I expected the strengthening USD at the beginning of 2014, which is over a year ago. And European investors made 40% in US equities over the last 12 months while a US investor lost 10% in European equities, all calculated in their home currency. Hence, if you don’t understand currencies, you may get lost in these markets. I would certainly stay as far away as possible from emerging market currencies, bonds and also equities. On the positive side, I expect the USD strength to continue over the next 2 years or so but see some potential for a correction this spring. Long US treasuries are the most attractive fixed income instrument in the world because the economy will soften again against the general expectations of an economic reacceleration and rate hikes may be postponed for longer than generally expected. In equities, I find German equities the most attractive. Leading German multinationals made good money when the EUR/USD was trading at 1.40. It is trading now, at the time of this interview, near 1.08 and it must be a bonanza for them in terms of earnings. I would use short-term setbacks to buy more, but always hedge the currency.

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max2205's picture

Would you trust your money or well being to those three old fuck faces?   Didn't think so  

J S Bach's picture

I'm sick of these "Billionaire Warns" articles.  Most, if not all, of them are crooks to some extent or another and have gotten their loot using the same system they claim is "rigged" or "out of balance".  I'd rather listen to my barber for wisdom.

new game's picture

wisdom has run its' course. yea, i'd say time to tune out and i probably wont miss a beat til the the clothes are missing by said swimmers...

Freddie's picture

Years ago when I read Barrons, I enjoyed his stuff on the Barrons Roundtable.  He is a good money manager and has been pretty successful.

HardlyZero's picture

I like to listen to Felix, on KWN podcasts.  He is pro-Gold and pro sound monetary policy and generally anti-fiat.  His economics are solid and Austrian.   But on the other hand is part of the system.

DeadFred's picture

The big question is if Frank has a PhD.

ImGumbydmmt's picture

Phd or not, I bet he can whip up some green eggs and ham by Sam!

SWRichmond's picture

...pumping so much money into global financial markets

If you can click it into existence, it's not money, it's credit, and the two are vastly different, as we're about to find out.  If it was money, they could click each person on the planet $1,000,000,000 and no one would ever have to work again.

El Hosel's picture

He plays the rigged fiddle like Pecaso on the Federal fairy dust. Snorting wiskey, shooting QE, laughing all the way to the Bank of Dirtyfuckerville.


blowing winter's picture
blowing winter (not verified) sam i am Mar 29, 2015 8:12 PM

I'm making over $7k a month working part time. I kept hearing other people tell me how much money they can make online so I decided to look into it. Well, it was all true and has totally changed my life. This is what I do... www.jobs-review.com

tarabel's picture



I joined this new online program that is EVEN BETTER.

It's called NTOJ-- which stands for negative time on the job. The less you show up for work, the more you get paid.

So now I'm making so much money not showing up for work that I'm looking into identity theft in my ample spare time so I can double the time I don't work and make even more.

ILLILLILLI's picture

That, sir, is a masterpiece of inspired wit.

SWRichmond's picture

We the middle class, who have been paying more and getting less for so long, will soon be qualified to pay everything and get nothing, forever.

Thirst Mutilator's picture

Oh looky here... Another jew billionaire telling u how THINZ IZ...


Reported by??? a jew... Get right out of town!


QEbubble's picture
QEbubble (not verified) Mar 29, 2015 7:33 PM

Bullish, continue to short gold all the way to $800


Pairadimes's picture

Risk isn't the issue. The probability of fiscal disaster is 1. The problem is stupidity.

confederacy of the dunces's picture
confederacy of the dunces (not verified) Mar 29, 2015 7:49 PM

Come on Tyler(s) -- if I read another "billionaire says equities are _________________ and the world will soon end" I am going to buy a nail gun, and jump off an office building, ater telling my wife I will pick up eggs and milk on the way home. Fuck you Tyler(s) -- get some new fucking material already. The muppets are winning -- so dig a little deeper with your content so you can justify the grotesque ads on this page. Seven years ago this site was organic -- now I wonder if Tyler(s) is working for the muppets. ZH is starting to feel a bit like "Room 101".



weburke's picture

I like the editors here. what a show ! Felix is part of Barrons, you can certainly make money listening to Barrons. Well, now, we are in crazy land, so, I am fully out of everything. 

AbbeBrel's picture

A guy who makes 22% CAGR over ten years (and is NOT part of Barrons - just a member of the roundtable) - gets my respect. Plus he is Swiss and amazingly independent and plain speaking.

Here are the numbers:


and over ten years:


As for me, as Zulauf recommends - I am long the long bond in the USA. Bring on deflation!

Tinky's picture

I agree. Zulauf is one of the very best mainstream observers.

GMadScientist's picture

Ze problem is analogous to attempting to do a biathlon (ski and shoot) while tripping on Mescaline.

Caviar Emptor's picture

Plus ca change...the more things stay the same.
Markets are no longer free to crash or correct.
Consumer prices are free to rise however. But rate hikes won't happen because of weak demand

luna_man's picture



But, did he mention GOLD & SILVER?...some people

CHX's picture

Not explicitly... but he said all currencies are extended (i.e. vis-a-vis gold and silver, of course).

q99x2's picture

"In my view, #3 [asset price rise, i.e. BTFD bitchez] will be the most likely outcome."

Groucho's picture

it's like george burns used to say "no wonder we're in trouble, all the guys who know how to run the economy are driving cab and cutting hair".

billybobtx's picture

Ummm...that guy's hair is green. Hard to take him seriously. 

Proofreder's picture

Or as will rogers said ...

This stock market thing is a great game, but, after all, everybody just can't live on gambling. Somebody has to do some work. You've got to go out on a limb sometimes because that's where the fruit is, but don't gamble; take all your savings and buy some good stock and hold it till it goes up, then sell it. If it don't go up, don't buy it.

Even if you're on the right track, you'll get run over if you just sit there.

shervin2's picture

Bankster Math Problem #1

The banks have been playing musical chairs with the world for a hundred years. Every year they pull out a chair for themselves, that used to belong to everyone else, until there's only one left.

What happens when the music stops?

hedgiex's picture

China will not go on an expansionary policy to the extent of EC/US. Yes it will defend the RMB from the effects of the simultaneous QEs of Japan, EC & US. (Short tem shorts on RMB/$).

Yes it will be in LONG landing alleviating the fallouts from the winding down of its manufacturing gargantum and the debt ridden infrastructues.

Global slowdown is its greatest arsenal to propagate to its People to tighten. The multipler effect cannot be underestimated by a People who can tolerate far greater hardships than their Western counterparts.

China is not a financialized economy. Neither will any explansionary policy not be executed to cure the sources. They do not have and also learnt that markets will not transmit the expansionsions effectively. (At worse what flows to Banksters in the West just flow back to State Owned Enterprises in China).

Keep wishing that China will implode ahead of the markets of EC.

With due respect, Felix is superficial when it comes to China.

RazvanM's picture

We are lucky that there is that beacon of civilization, progress, peace, orthodoxy and good - Russia, to save us from all perils. And do not forget the greatest president ever, Vladimir Putin! Who doesn't talk to any banker, because he only despise bankers.

FMOTL's picture

Lord spare us , aaaand another  "Puutie pants" playground troll shows up

RazvanM's picture

I'm in the same club of one and a half incher ding as mr. Putin, so I try to write niceties about Him to give some cheer ups.

amanfromMars's picture

And whilst all those wannabe Neros fiddle, and Rome crashes and burns, are there new kids on the block playing intelligently to no rules without any regulations ..... other than to win win and never ever lose to paper tigers with their fangs into the fiat cake of destruction. Stealth is as stealth does, and is practically invisible whenever virtually realised and HyperRadioProActived IT.

Thanks for stopping by for a bit of a chat and pow wow. Russia has Putin and UKGBNI has Cameron and the media plays them both off as fools with friends at their beck and call, but only the one of them has any power within commanding control circles and secret services and virtually immune and protected against brazen media assault and desperate shenanigans. And re any Blighty Armed Forces Virtual Ops here ..... well, better late than never to the party and Greater IntelAIgents Gamesplay is what I say. England and the Knowledge Economy expects and all that jazz and jizz and Tommy rot and if you aren't into Cyberspace Racing you have no chance of winning Honourable Grand Master prizes ...... but parties do need to be able and able to enable and execute the best of intelligence in order to register any sort of an impact with a PACT* and distant learning and leading AI, for that is the Future Changing Meme and Alien Fleet Cyber Weapons System/Revolutionary Rogue Mars Program for Roving Vehicles and Renegade Projects.


* Persistent Advanced Cyber Treat/Threat/Truth ...... [Take your pick if you be picky, but be suitably assured, there be no escape from any of them nowadays as the future is phormed in the likeness of phishes]


30 March 2015 at 11:08 ..... http://amanfrommars.blogspot.co.uk/2015/03/150329.html


The Future belongs not to that and/or those who would hide and guard secrets, but to those and/or that which would share them freely for maximum effect and titanic gain. Then does AIdDanegeld have a colossal intrinsic worth and ab fab fabless value to market to markets and systems and administrations that would presume to remotely command and unilaterally control them

Last of the Middle Class's picture

ya think? what was your first clue dumbass.

BoPeople's picture
BoPeople (not verified) Mar 30, 2015 6:11 AM

Felix is clearly an insider who understands the system, has many friends within the system and uses the system to take money from others and give it to himself. He has insight and is nice enough to share that insight with us. That being said, he does zero value adding work and is phenomenally rewarded for being a parasite ... as is the way of things today.

Felix is an artifact of the old system. It is a world where people constantly fear not having enough... so they take by any means they can. There are two ways to rectify the problem of fearing not having enough. One way is to gather enough and the other is to not fear.

Spiritually/emotionally we cannot evolve by gaining enough (and this is why camels have difficulty fitting through the eyes of needles). The only way is to go against our natural instinct and learn how to "not fear"... regardless of the consequences.

orangegeek's picture

Good eye Felix.  This dude is smarter than a bag of hammers.