Felix Zulauf: Expect 20% Correction This Year

Wed, Feb 12, 2014 - 3:44pm

Legendary Swiss investor and hedge fund manager Felix Zulauf joins the Financial Sense Newshour for a special in-depth interview on what he expects for the markets in 2014.

He points to a combination of a global slowdown, technical deterioration in equity markets, and tapering as a reason to be defensive. Although he has closed his shorts in the near-term, he believes investors should consider buying bonds ahead of a potential 20% correction this year, and then rotate back into stocks at lower prices.

Here we provide a few excerpts of his exclusive interview that will be airing Thursday for subscribers:

Zulauf: “You have upcoming potential disappointments in the world economy, you have a deterioration in technical terms of the equity markets in the developed world, and you have the tapering and the withdrawing of monetary stimulus. I think this combination tells you that the upside is much more limited than the downside in the stock markets and that is why I said in the Barron’s Roundtable in early January it’s better to be more defensive now because at some point this year we’ll have lower stock prices.

We now have a tactical rally in the stock market. It’s unclear whether we’ll make new highs and make a top sometime in late spring and then have a more severe decline or whether this is just a temporary interlude—a bounce back—and then a second phase of decline that goes deeper than most expect.

We have tactically closed our shorts last week around the lows because we saw the ingredients of a good short-term low. We also closed our shorts of emerging economic currencies, like the Turkish Lira, temporarily. We think the fundamentals are still there and will deteriorate further and we'll have to open those shorts again. We have bought some of the gold mining stocks, GDX, and we are looking to buy again on these bounce backs in yields into US Treasuries. I think US Treasuries will probably give us some safe haven protection if the decline continues.

I think 10-year Treasuries near 3% are attractive or 30-year Treasuries near 4% are attractive and I think you will make money on them because some time during this year we should have a bigger decline of probably around 20% in the stock market and when that happens you can then sell your bonds and then buy stocks again.”

In the rest of this in-depth interview, Felix also gives his outlook on a large list to topics, including the U.S., China, Japan, gold, and much more. To become a subscriber and listen to the interview in full, CLICK HERE.

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