David Rosenberg Channels Felix Zulauf

Tyler Durden's picture

From David Rosenberg of Gluskin Sheff

This Felix Is No Cat

Though he does seem to be a furry animal nonetheless ... I'm talking about the legendary Felix Zulauf and his remarkable contribution to the Barron's Roundtable. This is what he had to say — clear, concise and cogent:

There is too much debt in the industrialized world and the financial system is virtually bust. Rea/ disposable personal income is stagnating or declining. Employment participation keeps heading south. This produces a chain reaction: Weaker consumer demand in the West weakens manufacturing in places like Asia, which weakens natural-resource producers such as Australia or Brazil.


As for the euro, it is a misconstruction. As I said in January, I expect the disintegration to begin in the second half of this year. That should lead the world into financial and economic chaos. My two major themes into 2013 are euro disintegration and China weakness, due to the bursting of a real- estate boom.


The global economy is weakening cyclically on top of a highly fragile credit system. It is an explosive cocktail. The tower of debt is compounded by the gigantic over-the-counter derivatives market. In the past 10 years the notional value of derivatives worldwide has grown from $100 trillion to almost $800 trillion. The numbers are mind-boggling. if something goes wrong in the real economy, it could shake the whole credit system dramatically. It is a dangerous situation.


The euro is not the real problem but a trigger and compounder of the structural problems. It could only work if the euro zone entered a fiscal and political union, which won't happen, as Europeans aren't prepared to give up national sovereignty. Politicians therefore will go from one compromise and quick fix to the next, with the crisis deepening until some nations at the periphery won't be able to stand the economic pain anymore. They will want their old national currency back, and devalue to adjust the external accounts.


China won't be able to save us, as it did in 2009. The Chinese will lower interest rates but their actions will be reactive and lag. If my thesis is right, we must assume things will go awfully wrong in the next 12 months and the system will be at risk of collapsing. Most U.S.-focused investors might not understand it as they see corporations doing well.


The potential exists for a broad-based nationalization of the credit system, capital controls and dramatic restrictions on financial markets. Some might even be closed for some time.


We are witnessing the biggest financial-market manipulation of all time. The authorities have intervened more and more, and thereby created this monster. They might change the rules when the game goes against their own interests.


We are in a severe credit crunch. It starts when the weakest links in the system can't finance their activities. Then you have a flight to safety into Treasuries and German bunds, compounded by a quasi-shortage of good collateral. That's why bond yields have fallen so low. This isn't an inflationary environment but a deflationary one.

I like to think I could have said it better, but I don't think I could have. These are just a few excerpts but very hard-hitting stuff and a nice contrast to a lot of the other mush out there. Fred Hickey is worth a read too in this Roundtable discussion, ditto for Marc Faber (disclosure: they are friends of mine, but don't hold that against them!)

The full Zulauf note can be found here

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BKbroiler's picture

how bout some good news?  anyone?

q99x2's picture

Unless you are a transhumanist you likely have to live less than a 100 years.

lineskis's picture

"This isn't an inflationary environment but a deflationary one."

Only until central bankers hit CTRL+P to infinity and beyond, as to them deflation is NOT an option.

trebuchet's picture

i was thinking that too, but started to doubt it will happen immediately, they are keeping their powder dry for Grexit scenario

Lucius Cornelius Sulla's picture

They can't hit CTRL+P to infinity because there is a limit to how much they can print before inflation gets out of hand and the bond market collapses.  If the bond market collapses it is game over for the US dollar and the USG.  If borrowing rates go up just a few percentage points, they will not be able to roll the debt over to fund the government.  Most taxes will go towards interest payments.  Therefore, I think it is more likely that the cycle of deflation will happen as described by Felix and outlined by Comstock Partners.



Reese Bobby's picture

The kingdom of God is within you.

Bansters-in-my- feces's picture

Good news....! Good news.....!!!!

You want "good news".

Well I' am being sprayed daily by american jet tankers with chemtrails,is that "good news".

I guess if i was invested in whatever they are spraying on me it would be good news......

I think.......

Ness.'s picture

The Miami Heat lost last night.



Raisuli's picture

The Oklahoma City Thunder won last night.

Stoploss's picture

Yes. It has been proven without a doubt, every single day since '08, that deflation is the most powerful financial force, i don't give a shit what anybody else says, because the mighty FED's 24 -7 -365 incessant injections cannot knock one scale off that beast.

There is only one cure for deflation..

Deflation... Just like the cure for high prices, is high prices, the same goes for low prices.

The "good news" is there's nothing left to throw at it without making it even stronger.

Does Ben know that?  We shall see.

RoadKill's picture

How is DEFLATION a call for "gold bitchez"?

Do you understand deflation vs inflation? Gold is great for inflationary cycles, but show me a single example of gold outperforming in a deflating currency. Seriously, show me one. You can use any period during the last 500 years, but it has to be over a minimum of 1 year, not just the last 5 days.

I understand the arguement that the deflation will be so bad it will lead to inflation, but thats a different trade.

lemonobrien's picture

cause deflation brings down the system and only golds survives.

flacon's picture

Has there ever been a time in history where the central planner DIDN'T issue more fiat money to counteract the hyperdeflation? 

BKbroiler's picture

you're talking to a wall. but yeah, the deflation argument is a little scary, you never know.

Personally, I think we will see deflation, then sudden, rampant inflation, hence the gold position.  We could see $500 then $5000 shortly after.  Physical steadies the hand.

ronaldawg's picture

I agree regarding the deflation and hyper-inflation scenario - that is why I have my sh!t under my mattress - when deflation hits I will be buying GOLD bitchez!

Tinky's picture

Have previous deflationary periods been directly correlated to the rapid degredation of fiat currencies? Has there been a coincidental panic amongst investors, who control enormous sums of money, and a resulting flight to "safety"? And if currencies and sovereign debt are increasingly (and correctly) viewed as being unsafe, to where does the capital flow?

I'm asking those questions because while I am not a student of economic history, the current set of circumstances appears to be unique, and it should be easy to see why gold is likely to fare well.

Poor Grogman's picture



Research Exeters Pyramid

the answer to your question lies there...

Pejorative Requiem's picture

Yes, excellent. Thank you. And the inverted pyramid is a subtle reminder of the motives for a government to make illegal the private ownership of gold.

Spitzer's picture

How is DEFLATION a call for "gold bitchez"?

show me one.

Iceland, Asia in 1997, Russia in 1998, Argentina, South America in the 80's.


Sophist Economicus's picture

Let's not forget the USA right before King FDR declared a bank holiday.    Everything was deflating while gold gained in purchasing power.

trebuchet's picture

Are your examples examples of collapses in ASSET prices? coz in my book that is not deflation. 

Currency collapses in those examples conributed to local inflation there. 

Same wih the Great depression


Spitzer's picture

Are your examples examples of collapses in ASSET prices?

Priced in what ? The USD or the local currency ?

trebuchet's picture

doesnt matter, those exmaples have foreign currency devaluation relative to USD, in whichever currency lOCAL asset prices fell.

in domestic currency, price of daily living increased because of local currency devaluation vs USD.




trebuchet's picture

doesnt matter, those exmaples have foreign currency devaluation relative to USD, in whichever currency lOCAL asset prices fell.

in domestic currency, price of daily living increased because of local currency devaluation vs USD.




disabledvet's picture

Or more recently the USA in 2008. Then both gold and oil collapsed as they are doing this time. Control P is wishful thinking. These have been War Games for some time now.

All Risk No Reward's picture

Deflation or inflation depends on one's moentary perspective.

Big Finance Capital saw Argentina deflate as the citizens of Argentina saw their currency collapse relative to the FRN debt receipt dollars.

Let me explain before getting all upset.

Big Finance Capital effectively impoverished the average Argentinean (after creating a bubble for them!) and that reduced demand in Argentina as the locals were wiped out.

The FRN debt receipt dollars didn't collapse in value, so they were able to buy much more of Argentina for the same amount of FRN debt receipt dollars.

Comparing what is going on now to Argentina is simply to not understand the difference between apples and organges.

1. Big Finance Capital controls the mega banks and the Federal Reserve System - and our money supply.  Our "government" empowers Big Finance Capital's monetary monopoly - so don't think they have your back, they don't.  The bureaucracy is also aligned with Big Finance Capital - the revolving door and all.

2. Big Finance Capital has trillions of dollars in debt instruments and trillions of FRN debt receipt dollars lining their pockets and the pockets of their front mega-corporations.

Now, if you were sitting on all that debt and and FRN debt receipt dollars, would you burn it all up and bail out those indebted to you?

Think long and hard - and apply logic.  The answer is so simple, even Henry Ford got it right...

“It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning. The one aim of these financiers is world control by the creation of inextinguishable debt.”
~Henry Ford

Now, the end game is hyperinflation, but it will only used when it profits Big Finance Capital because Big Finance Capital controls the money supply which determines the outcome.  They won't wipe themselves out and bail out debtors no matter how much a debt saturated society dreams of this outcome - ain't gonna happen.  They rip YOUR face off, not their own.

I have no crystal ball, but if I were Dr. Evil and I were them, I'd...

1. Leverage to the hilt and blow the world's largest credit bubble and lie about it so the Muppets didn't know I was breaking Section 2A of the Federal Reserve Act.  Done.

2. When the bubble finally burst, I'd loot the Treasury dry and offload my worst assets off onto the Muppet suckers...  but they might get mad so I'd lie to them and call it "stimulus."  I'd call the operation "Quantitative Easing" because it quantitatively eases the Big Finance Capital losses by using society's FRN debt receipts to prop up the markets so we can front run and then get out at much higher prices.  Muppets will believe anything.  In process.

3. Allow the Debt Money Tyranny to collapse, as it must, and bust out all the debtors so that I can roll up all their hard assets under my front corporations.  Of course, I'd pump hyperinflation ahead so everyone is "all in" in risk assets just before the dumpt.  Suckers!

4. Once I own much of the Earth using the principles of Sun Tzu's Art of War, I'd hyperinflate to "balance my books" and call it "even."

No, this couldn't work.  My banking fronts would have to be Too Big Too Fail so that they would survivie during this collapse that would wipe out all their competititon.

I'd have to set up a police state where I could monitor the Muppets that might catch on...  I'd need to use the military to control people as I asset strip me some Muppets.  I'd need my Presidential Puppet to claim dictatorial powers to disappear anyone I wanted and even kill them...  but no evidence can be presented because we'd be disappearing political dissidents for telling the truth, not for real crimes.  We'd need FEMA camps and we'd need a plan for political "re-education camps."

Naw, not even the Muppets are that stupid to allow me to wield the Central State in this fashion.

Oh....  wait...

BTW, I'd probably incorporate the gold standard somewhere in the process and use it to correlate with the depression that wipes everyone out and conveys society's wealth to me...

Bwahahahahaha, the Muppets will be crying to me for a cashless Debt Money Tyranny system!

We live in interesting times.

Solon the Destroyer's picture

Do you understand deflation vs inflation? Gold is great for inflationary cycles, but show me a single example of gold outperforming in a deflating currency. Seriously, show me one. You can use any period during the last 500 years, but it has to be over a minimum of 1 year, not just the last 5 days.


Gold is historically a poor inflationary hedge. It is however a very good hedge during deflationary credit crunches.  Inflation all the way from 1985-2000 and nary a budge in gold.  However a great time to buy commodities, real estate, equities, etc.

During the Great Depression, however, Gold popped.  (Keep in mind confiscation is a risk no matter which end of the cycle we are at).

When returns on risk are artificially forced down, when equities are hanging on the edge of the cliff and it is dangerous to put your money in the bank due to the deflationary credit crunch, and the political will to return to sound money becomes a cacophony, what do you do?

Buy Gold.

I buy gold because I'm a deflationist.  If I was betting on inflation, I'd be in the stock market.


Spitzer gets it.

Solon the Destroyer's picture

For a much more in-depth discussion of gold's behaviour during historical periods of inflation and deflation please read Mish here.

Or anything by Professor Antal Fekete.

unununium's picture

If I ever wonder what Mish has to say, I'll look myself.

disabledvet's picture

What did gold "pop" in the Great Depression? 5 bucks an ounce? Gimme a break. Deflation means "paper covers rock." if oil prices really crash (as I think they must. France has ordered a halt to drilling off Northern coast of South America for fear of this and the competitive advantage it gives the USA) then transports power ahead in addition to all industry at every level given the rock bottom price for natural gas and the fact that electric utility rates havn't gone up in the USA in two decades.

Rip van Wrinkle's picture

Errr...1933? $20 to $35 in one, fell swoop.

jimmyjames's picture

Do you understand deflation vs inflation? Gold is great for inflationary cycles, but show me a single example of gold outperforming in a deflating currency. Seriously, show me one. You can use any period during the last 500 years, but it has to be over a minimum of 1 year, not just the last 5 days.


I'll show you 3 examples of why you have it wrong-

Gold in inflation 1980-2001



Gold in deflation-




post turtle saver's picture

+1 - gold is a performer when you have credit stress and deflationary pressure. Too bad when things really fall through the floor it either gets taken away from you or you can't eat it.


Deflation is a net decrease in money supply and credit with credit marked to market - Mish


Mish is right. Look at the daily 10-year US treasury yield curve rates and tell me that's inflation.



mcguire's picture

negative real rates on the 10 year.. amazing.  

jimmyjames's picture

Mish is right. Look at the daily 10-year US treasury yield curve rates and tell me that's inflation.


Yes Mish is right and he's been right all along on the big picture and the eventuality-


BlandJoe24's picture

Gold retains intrinsic (though still perceived) value, but the PRICE of gold (how much cash in the reserve currency of the area you are in) will go down in a deflation.  

This is because in a deflation

1. each unit of whatever currency is the de facto reserve in your area becomes worth much more in real terms  (each unit of currency can get you a lot more stuff, ie: real money in hand becomes much rarer and harder to come by, ie: people generally have much less money and aren't able to borrow any either.)  

2.  supply vs. demand.  The number of sellers will increase as people are forced to liquidate hard assets like gold to meet basic needs.  The number of buyers will decrease as people have much less money to spend on anything but basic needs.

In other words, in a deflationary depression the main thing people will need for general economic transactions beyond barter, is cash (in the currency actually of value in your area).  "Cash is King in a deflation" is the  time-tested saying for a reason.  Gold will still hold some value, and certainly when/if hyperinflation kicks in, the price of gold will rise dramatically, but that may be a while from now.

An exception would be areas in which gold/silver become the everyday reserve/in use currency.  Gold bugs feel that will happen everywhere, other people feel differently.

And of course individual resilience/preparation in combination with localism (for resources and basic needs) and a mutually supportive community of friends/family/neighbors, is the most important survival "strategy" in hard times.

web bot's picture

yoiu're absolutely right and... once the Euro starts coming apart... and you have trillions of dollars sloshing around the globe seeking yield... and when you have the USD collapse... then you'll see PMs moonshot.

Many people like you miss this important point. In a purely delfationary environment, you're right... but there are other factors at play which will be seeking a store of value during the upcoming collapse.

tarsubil's picture

Doesn't this boil down to simply, 'in a credit crunch, cash is king; with the subsequent cash tsunami, gold is king'? The levels of Exter's inverted pyramid are not created equal. While cash can be printed, gold cannot. When cash gains value it will be printed. Just look at the US Fed debt.

Ookspay's picture

There are NO lessons in history for what we are now experiencing, There is no playbook.


"History Will Teach Us Nothing"

If we seek solace in the prisons of the distant past
Security in human systems we're told will always always last
Emotions are the sail and blind faith is the mast
Without a breath of real freedom we're getting nowhere fast

Gordon Sumner

Plumplechook's picture

Don't quote Sting lyrics at us.   It only weakens your case.

Dahdoodoodoo, Dahdaadaadaa etc.

jez's picture

Quite. Another one who's got it into his head that he's a great artist.

constantine's picture

Personally, I think that we mistake 'demand destruction' for deflation.  This massive decrease in demand and shifting left of the curve, due to financial meltdown, will cause deflation in countries that are not heavily indebted, such as Chile and Switzerland (though they're tying their best to rectify that with their stupid EURO peg).  However, this decrease in demand (depression) will lead to a currency crisis in the heavily indebted western countries as people finally put 1 and 1 together and realize that there is no chance of ever repaying the debts off with real money and that it really isn't a joke and, no, it won't be their grandchildren who bear the brunt of their profligacy.

So bottom line,

1) real and nominal prices will decrease in countries that aren't in debt - which we can count with one hand.

2) real prices will decrease and nominal prices will increase in countries that are heavily indebted.

There's also the chance that a failure of multiple reserve currencies could just cause a global panic in all paper money - even that which is relatively sound - in other words irrational panic.  I know Tyler will probably think my little synopsis is simple but, frankly, in the end most economics does rest on the simple foundation of a few basic principle, which have been skewed these days with the plethora of exotic financial instruments, which in the end, will only delay the final result and return to the more simple dynamics.

Calmyourself's picture

Yeah your right, paper only pretty, pretty printed paper will be worth anything shortly..  The more flowers and the prettier the ink the better.  I for one am holding out for the orchid of the valley edition, ten kaziilion bernanke bucks in value, bring it..

Offthebeach's picture

The local temples( town hall ) , the state temples and fedgov temple will demand temple dues( taxes ) in temple script. Or else. The Muppet class can barter amungst itself with pussy, Meth, pot, housecleaning, property maintenance on estates of temple priest, guards,, e t.. like all regimes, employment / using up testosterone and romantic idealism of young healthy males will be afforded distant wars in resources thieft. This leaves large numbers of young females, unwanted save as domestic and sexual labor to temple staff and enforcement. Obama/Romney care requires yet more temple script, and ceazses the life span of worn out muppets.
Dollars will have value because it is ordered so!

mkkby's picture

Roadkill, in the last deflation -- the great depression -- dot gov confiscated the gold and then devalued against their new stash.

kalasend's picture

But he said it's deflationary, not inflationary...

ronaldawg's picture

Just like it is stated in Princess Bride:  "You keep using that word. I do not think it means what you think it means."

WageSlave's picture

Who's the more foolish, the fool or the fool that follows FoolsAdvice?