ZULAUF: STAY DEFENSIVE
In case you missed this weekend’s Barrons, there was an update of the roundtable pundits. One of the few whose predictions continue to pan out was Felix Zulauf of Zulauf Asset Management. Zulauf’s recommendations at the beginning of 2012 included shorting metals, industrials, banks and technology (which has not panned out). He also recommended defensive long positions (see the full report card here).
His overall outlook hasn’t changed much. He still thinks the Euro is in the process of imploding, Europe remains in recession and China is slowing. So what’s an investor to do now? Zulauf likes cash and gold:
What is an investor to do in the face of this unpleasant news?
I am sticking with my January recommendations. In the short-term, equity and commodity markets are making a low. They are oversold. The euro zone will come up with new quick fixes later this month and markets will attempt to rally. But I see a cyclical bear market continuing well into 2013.
I would hold lots of cash, preferably in U.S. dollars. While I expected Treasury yields to hit bottom in the fall, I would take some profits and not buy new bonds. Sell the rest in the fall, and use a stop-loss order to protect profits if you bought the 10-year when it was yielding 2.20% in January, as I recommended. Stick with Australian three-year government bond futures. This is a direct bet on China’s weakening, and short-term rates could fall further. I also continue to recommend buying gold if it breaks below $1500. That could lead to a quick shakeout into the $1300s, but gold will offer protection in coming years because it is true money.
Source: Barrons
Cullen Roche
Mr. Roche is the Founder of Orcam Financial Group, LLC. Orcam is a financial services firm offering research, private advisory, institutional consulting and educational services.
Follow Me:
21 Comments
Not sure if Barron’s did this intentionally but they put Abby Joseph Cohen’s Wells Fargo and Pfizer stock picks next to Zulauf and his recommendations. Cohen’s diatribe was about typical historically low P/E ratios and strong balance sheets etc. etc. Just your standard Ameriprise Financial type analysis. I have no idea why they keep inviting her onto that panel. Gross, Zulauf, Faber are pretty good thinkers/ pickers.
WTF!!!!!!!!!!!!!!!!!!!
WTF!!!!!!!!!!!!!!!!!!!
A ONE PERCENT MOVE ON THE SPY BASED ON RUMOR!
ANYONE THINK THIS IS NOT THE MOST MANIPULATED MARKET. I’M WAITING FOR AL SHARPTON TO GET ON CNBC AND TELL US ALL WHY THE AFFIRMATIVE ACTION SPY DESERVES MORE HELP!
AM I SHORT…HELL YA! WILL I BE CLOSING IT OUT…HELL NO! WHY? BECAUSE YOU TELL ME HOW HEALTHY THIS MARKET IS WHEN AN INDEX NEEDS RUMORS TO JAMM IT UP BEFORE NEXT WEEK!
SORRY FOR YELLING…BUT WTF. I WANT FREE MARKETS BACK. THEY’VE TOTALLY FUCKED ANY KIND OF PRICE DISCOVERY….YOU NOW MUST WAIT FOR THIS TO END AND IT CAN’T. THEY REFUSE TO ALLOW THE AL SHARPTON NAACP SPX TO GO DOWN.
AT ALL COST TO THE FUTURE…THEY WILL KEEP THIS THING UP UNTIL IT JUST breaks!
Look..Guys/Gals…someone please tell me how a spike like that gives you confidence. That no matter what your SPY is guaranteed to go up…until it isn’t.
Isn’t better to allow these events to do what there meant to? Give those investors the losses they deserve. Shouldn’t a market so intertwind with opaque instruments be allowed to explode like a new porn actor all over Kobe Tai.
Or should we just sit around our offices and watch this actor go for hours with no climax. Just one long kick the can..confidence beating movie until the actor goes limp and Kobe Tai get’s up and leaves.
Once a year I go postal on Prag Cap…there it is.
Now that I’ve caught my breath. I’ll be looking to accept like a fish that my world is wet. And accept what I can’t control. Back to plugging my noise, and making money.
HOWLING!!!! i’d say those were VERY prag CAPS you were using to express yourself.
totally agree, well said in your postal moment! you’re allowed one a year!
rhp
VII CB’s work on surprise, this seems like a desperate attempt. If it were real that imminent intervention is happening I doubt Cb’s would have said anything.
Be ware: last Friday a rumour was announced, the IBEX opened on Monday with almost a 5% wide gap to the upside! During the day it sold off and it hasn’t gained thse levels back (when I was selling btw as I said here). I haven’t added to longs despite rumour.
Looks like a repeat of last week, with efforts to sustain the market OR efforts to sell and add short positions by some market participants. But we will see…
From the ash comes a new forest. Stronger.
Y2K nothing happened. However 3 months later the 18 year Bull market ended.
I don’t think Grexit will do anything. But in the coming months we will one way or the other finish this final chapter to close this book out. No matter how many pages they try and fill the book up with. It will end as it was meant to all along.
I’m warming up to the idea the market rips and prints above 1440.(1447-1451) and then continues what was meant to occur back in September-October of 2011.
I trully have NO CLUE. My work says one thing and every passing day it’s getting more muddled. There is no point in me posting my positions..because everything is basically locked down to net out to about 3% between now and the end of the year. I can’t get long and I can’t get short. I’m Zeroed out. I have no idea what happens next Leverage. I have a better shot at winning the lottery than picking the right side of next week.
Don’t fight the fed is all I hear when I go to sleep.
“I’m warming up to the idea the market rips and prints above 1440.(1447-1451) and then continues what was meant to occur back in September-October of 2011.”
Which is? So many months…
About FED et al. the problem is the emperor’s cloths… Look, all FED QE’s coincided with a rise in deficit spending (tax cuts or stimulus), if the FED were to do a new round of QE (depriving of more good collateral the system when its needed the most!?) and the economy went downhill it would be seen the empror’s have no cloths.
I doubt Ben is (yet) ready to do BIG helicopter drops and enforce cuts in mortgage rates and principals for example. He needs deflation for that, and I mean real deflation like for at least a quarter.
as I said in other thread… central banks are stuck between inflation and deflation threats, both are real and both can trigger a collapse of the economy and the social fabric. This are dangerous times, real dangerous, I would listen to Zulauf, he is a smart guy: we may soon see capital controls and nasty stuff going on, experimentation has been going on in Greece and will extend if necessary.
Capital preservation is a top priority right now. The problems are more serious than most people want to acknowledge (ofc everything has a solution though). So my conclusion is similar to yours: this is madness and unsustainable.
People like Jamie Dimon may have pockets deep enough to play around (nice to play with other’s people money and have government as backup), but everyone else is in a precarious situation at the expense of crazy politicians, central bankers, technocrats, corporate types and all that crapp.
+1 (walks up to the velvet rope..I’m with him)
The world didn’t end during the Great Depression. It won’t today.
The world did not end. Your correct. I’m long the world not ending BUT you lost -83% from the peak-trough.(29-49) and the last leg of that Bear market that started in 1929 had you losing -46% from 1946 to 1949 over 3 years.
The world didn’t end in during the bear market of 1966-1982 either. You just lost -66% of your money with the last leg from 1976-1982 costing you -44% over 6 years. peak to trough.
The world didn’t end from 1835-1857 but you lost -75% of your money with the last leg costing you -70% over 5 years from 1852-1857.peak to trough.
The world didn’t end in 1906-1920 bear market but you lost -73% of your money with the last leg from 1915-1920 in 5 years costing you -73% peak to trough.
This isn’t about the world ending. This is about what makes the world go around. Money, Debt and capital. I’m long the world and hope we understand based on history what’s at stake for families, and society should we live in a world that could see the market decline another 46% from the high of 1363 or 1419 or 1450 should it print that this year. The sooner we accept this the more likely we are to see less of a decline. Right now were making this larger and delaying the growth every day. Like snorting cocaine takes away your years in the future. This shell game has set us up for the mother of all sell offs. Better to come clean then do what were doing now othewise all one can say is….”the worlds not going to end” That is one of the few if only saving graces left now. So I’m long the world and short the markets above 1440.
Nice list of bear markets. But you don’t even need to go that far…
I’m sure most people who reads this blog knows for someone who was heavily invested in real estate. I personally know people, wealthy (or once wealthy lol) who were both invested in real estate and stock markets which have declined >50% from the peak and still are depressed in Europe. Sure you can ask a Japanese nowadays who was heavily invested 20 years ago.
And so far, interventions have been mostly ‘benign’ and with enough time to get off risky positions (see greek write-downs and some bank nationalizations), but still we have been some people losing quite a bit of wealth last times. I personally know some people who has lost A LOT of money because was heavily invested in Bankia, and can only think this hasn’t even started! Most of that people will never in their life will be again were they were 2 or 3 years ago, maybe something big will happen to their lifes though. Yes, the world won’t end, that’s not the point! A meteorite could fall on the earth tomorrow and life would survive anyway, so what?
VII is right when he says we can’t fight things that are bigger than us, the worldwide economy and society is confronting a series of financial and structural problems which won’t be solved any time soon even if we started to do the right things right now (which we won’t because the solutions require good will and global coordination sometimes). We can’t just react to events in a high uncertain world and that’0s why believing nothing will happen is not safe (IMO).
Oh, what a ridiculous statement: Sure it didn’t, but all sort of crapp happened including a world war. Off course humanity has transitioned thought very dark times compared to the current situation, losing a big part of the world population due to various illness, conflicts or shortages, and world continued, does that mean that it was all wonderful these days?
What I’m talking about is very minor in comparison: capital controls, expropriations, etc. (all that happened even in the US to some extent) is perfectly possible in the short term. People will lose money… forever. The world won’t end but massive transfer of wealth can happen (by intervention or by lack thereof), period.
Also: wake up. We had last year a collapse of several governments worldwide followed by massive social unrest in some nations thanks to inflation. Even that hasn’t been solved yet, as we are still are dealing with the aftermath in the MENA area.
Massive transfer of wealth indeed. ’49 and ’70s had the highest proportion of income accruing to the middle classes than at any other time in the century. A record 80% of national income during the 70′s. Interestingly they coincide with your bear markets VII. Hmm…..the world ain’t ending.
DOUBLE Eagle
Not my bear markets. I didn’t live through them. This isn’t my bear market either. Someone else created this one. I’m just affected daily and have learned to live in it. At times I need to go postal on pragcap to make sure I’m still alive and have the blood of an American capitalist. One who wants those other capitalist to feel the full force of their decisions so I don’t have to. Either way I live and love. Only get one shot at this life.
I hear you too! I’ve managed my own money for a living since 2001 and this last couple of years has been a joke – it’s no coincidence that all these investment bank alumni superstars are blowing themselves up once they go out on their own…even guys like Paulsen.
I reached the end of (what we in Australia call) the GFC in March 2009 having protected my capital but not much else. My analysis of performance suggested that I had hedged well but if I’d been prepared to go net short I could’ve had my best year ever , so I began changing things . of course from that point on almost every time the market looked like tanking the magic hand appears and I learned some very hard lessons about shorting I can tell you.
Even today (tonight my time) the Sp500 and a bunch of other indices were crusing along a classic intraday head and shoulder pattern and just as it was about to break …….rumour time. If I hadn’t seen it a hundred times I wouldn’t believe that someone with technical analysis was timing these rumours but it’s uncanny.
Anyways……the last couple of months have been reasonably kind. A fair amount of profits have been chopped up in the last week but overall still doing okay.
At this point my inclination is to be long (have just covered short) but smaller than usual just in case. Any positive news out of the next 3 do-or-die moments (Greek elections, Bernanke and Euro summit) will be shorted into when upside momentum is lost.
But it’s all just a guess huh? Headline risk, rumour and government intervention rule the day , as it has for the last couple of years. Like VII I crave something resembling a free market again.
+1 more for @Leverage. Well said. And I find myself tending to agree with Felix Zulauf. Desperate times call for desperate measures. So I would not be surprised if the Greek elections are won by the party opposed to the EU and its austerity conditions, then I think it is very possible that CB’s will intervene in order to fight a market downturn. CB intervention & other measures by EU leaders and IMF may be good for a one week to 4 or 5 week rally.
But these times remind me of August, 2007 when subprime problems reared their ugly head. The Fed intervened in a big way with shock and awe. Took the SPX up to its all-time high in October, 2007. A 2-month rally, all due to Fed. We all remember what happened over the next year. The only thing that would change my bearish opinion is if the Germans truly decided to go along with Eurobonds and joint and several liability. If Angela agreed to it she would be gone in the next election.
August 2007 or November 2007 – it’s one or the other as far as I can see.
I’m a technicals guy. I like the fact that charts reduce all the fundamental and economic factors, all the wildly conflicting opinions we rake over endlessly in these pages, and filter them down to a representation of the only thing that finally matters: the money.
When you take a bird’s eye view of the world’s most important stock markets and strip everything else away, what is money telling us? Here are a few snapshots from 30,000 ft.
http://jamesgoodeonthemoney.blogspot.co.uk/2012/06/nine-horsemen-of-eurocalypse.html
OTM
Good stuff. Last year I wish I would have read more of your work.
The market made me flexible, even though you tried to stretch me out. Cheers!
Today was just OPEX nonsense.
When the shit hits the fan i want the pockets of those responsible whether it is direct manipulation of the markets or indirect through the purchase of laws emptied and their heads on pikes.
THIS IS A WORLDWIDE BANKING CRISIS (THAT IS A PRIVATE DEBT CRISIS) not an economic crisis per se and NOT a sovereign debt crisis. Until the big banks, their bankers and their protectors will stay where they are now, NO improvement but just continous deterioration. There will be no solutions if the US will not move first because it’s where all started and it’s where all will end. If Mitt or Barack will be the next presidente we have to wait 4 more years of stamine. YOU NEED YOUR OWN OLIVER CROMWELL someome who cleans up the house, deeply and which must last for at least 3 generations. Because of the history of the US he will be an ex general, like Ike with the will and the support to do what necessary.