Felix Zulauf is Bearish on Europe and Emerging Markets in 2012

By on January 27, 2012

Felix Zulauf - Zulauf Asset ManagementMike Santoli recently interviewed Felix Zulauf, president of Zulauf Asset Management, in conjunction with the Barron’s Roundtable. According to Pundit Tracker, Zulauf was the most accurate Roundtable member over the past 10 years.

Zulauf commented that the European Union had an agreement in early December which has to be ratified starting in late April of this year. The agreement states that fiscal policy has to be tightened, and that deficits can’t be higher than a certain percentage, ecetera. He added the agreement has to go into the constitution of each country, leading to the issue going to each country’s parliament with the people voting on it.

Zulauf expects problems with peripheral uncompetitive economies, due to an overvalued currency and high real interest rates. In Zulauf’s opinion, by agreeing to the ratification the peripheral EU economies “write a prescription for their death sentence.” This will lead to some countries not ratifying, and potentially exiting from the EU, resulting in turmoil.

Zulauf said the European periphery is already in recession which the center will join and he forecasts all of Europe will be in recession this year. He added the recession could deepen further depending on various factors and unknowns and carry through into next year [2013].

Zulauf said the EU problems will create downward pressure on the world economy and the deflationary process will be reinforced. This will bring equity and commodity markets down until an extreme point is reached, which will call for policy reaction. Zulauf said at this point the bottom will come and there will be a buying opportunity. He predicted this point would be reached no earlier than the second half of this year and could be prolonged into next year depending on what happens with the political process.

In Barron’s magazine, Zulauf recommended shorting the iShares Emerging Market ETF (EEM), which he sees falling at least 20% this year. Marc Faber asked Zulauf at what point he would reverse his position if he was wrong to which Zulauf replied if the S&P 500 breached 1370, it would be a sign that he is wrong.

Business Insider’s Sam Ro listed what he considered the best investment ideas from the Barron’s Roundtable (it is nearly the complete listing of recommendations).

One Comment

  1. The Edge

    January 29, 2012 at 6:41 pm

    All the different opinions on this site make me more confused than ever. I feel like burying my head in the sand!

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