Felix Zulauf: Expect A Wild Ride (Up & Down) In Markets From Here

**Felix Zulauf** (0:00)
I would think that we probably make a peak in the first quarter in equity markets. Then we have a sell-off of maybe 15 to 20 percent in the major indices. And then we come back and go to new highs. Just to probably peak out again, and then decline in a more serious way in later 25 and 26

**Adam Taggart** (0:35)
Welcome to Thoughtful Money. I'm its founder and your host, Adam Taggart. As 2024 begins to draw to a close, investors are cheering a second blockbuster year in the stock market. And as we enter 2025, will the party continue? Will today's asset prices shrug off the growing litany of macro concerns and power still higher into the new year? Or will 2025 be a less enjoyable or perhaps even a more painful year for investors? I can't think of anyone better to ask these questions to than today's expert, who's among the world's most highly respected living investors, Felix Zulauf. Felix, thanks so much for joining us today. I know you don't do too many interviews, and we're extremely grateful that you've chosen to return to this program.

**Felix Zulauf** (1:20)
Oh, it's my pleasure. Thank you very much for inviting me, Adam.

**Adam Taggart** (1:24)
No, Felix. It's such a privilege and always a joy to talk to you, as I think I was telling you before we turned the camera on. You're right at the top of the list when it's been over a certain period of time since your last appearance on this channel. Man, the drumbeat of emails that I get from folks saying, when is Felix coming back on? Just get to a crescendo. So thank you for coming back on here at the end of the year and hopefully giving me a little bit of pause from all those emails now. Well, look, we're at the end of 2024 here.
Kind of a very notable time here. Like I said, we've had two phenomenal years in the markets, way better than folks were expecting at the end of 2022, right? Everybody was expecting a recession in early 2023 It didn't materialize, and we had a great year in the markets and even better year in the markets this year. We now have a lot of change going into 2025 with the new presidential administration here in the US. So, lots and lots to talk about. So, I got a lot of specific questions, and many of them are based in a report that you recently released. Before we get to the specifics of that, though, if we can, let me just start with a general question I'd like to ask you. What's your current assessment of the global economy and financial markets?

**Felix Zulauf** (2:44)
Well, there are major differences. You have China that is in a deflationary sort of trap and slowdown, and will remain so for many years to come. You cannot get out of it by printing money.
So that is the locomotive of the previous decade that is really slowing down the world economy. And then you have Europe in a very messy situation. The Europeans have messed up in terms of going green too much or to an extreme, following the US foreign policy against Russia in Ukraine instead of protecting their own interests. And that has really led to a major decline of competitiveness of the European economy, Germany in particular. And then what remains is the US economy. And the US economy has done much better than most experts, myself included, expected, two years ago and last year. And I digged into that to understand what it is. I'm not sure we want to address that later on or whether I should go into it. But that's the situation. And now comes a new administration in the US. And this new administration is very different from the previous administration. You know, the world is going through a major change in how it is organized, world order. I think the old unipolar, U.S.-centric order in geopolitical terms is over. It's passed. And the Biden administration is fighting and trying to defend it. I think Trump is less interested in defending it. He is more interested in making America great again by strengthening the economy, even at the cost of others. And this creates some uncertainty and potentially leads to some turmoil in the whole arena. This is the situation we are in. Now, in terms of economic policy, the world has relied on deficit spending and Central Bank really financing that forever. We are on a fiat-based, fiat currency-based system. That is not over. That continues. The recipe the authorities will apply will be unchanged from the past, except for maybe Mr. Trump. And that's the big question mark, how serious he will disrupt the world trade with the tariffs that he is putting on. The tariffs that he has mentioned so far are about in line with the tariffs we have seen in the period from 1900 to the end of World War II. And even if he puts in only half of what he announced, it would be the tariffs that were in place between the beginning of World War I and the end of World War II. And as you can imagine, those were not very pretty years. You had wars, you had fights, you had a depression, you had all sorts of problems, and the world was a messy place during those periods. So, if you go into protectionism in a major way, you disrupt world trade and you disrupt the world economy. And the question is whether Trump believes in tariffs as a way to stay or as a way to bargain a better modus operandi with his trading partners. That is still open for question. I think he really believes more in a way for tariffs to stay and then reduce tax rates. And even if he would achieve what he has in mind for the US, he would punish the rest of the world to such a degree that the rest of the world would go into a major disaster.