In early June 2019, Steve from cmgwealth.com shared notes from Felix’s keynote presentation at Mauldin’s Strategic Investment Conference in Dallas. You can find it here.
At that time, Felix said the global slowdown should eventually impact markets. He said, “The rally from the December low is over.” On December 27, he sent out a report to his clients saying this is the low. Then on May 2, he sent out a note saying there’s a “new sell signal.” I think we have started the second decline in this bear market that was interrupted by a nice rally. The S&P 500 peaked at 2,945, sold off and rallied to 3,000 in July. It sits at 2,976 today. His sell signal remains in place. On what to watch: He said, “The key is the Fed. If the Fed changes policy quickly and this weakens the dollar, we could have an extension of the business cycle. And that will be an investment decision we will have to make in the second half of this year. It depends on what they do…”
September 12, 2019 Webinar Notes and Link to Recording
Bottom line: In terms of big macro moves, Felix says the cocktail presented to investors is highly toxic.https://www.cmgwealth.com/ri/on-my-radar-zulaufs-bottom-line-whats-ahead/
- Felix believes a September 2019 stock market peak will be followed by a 20% correction with the low coming in late December or early January. That will send the S&P 500 back towards the December 24, 2018 low near 2,300. He believes interest rates are still headed lower and will bottom around the same time, perhaps making a long-term bottom.
- On top of a slowing world economy and already very low real and nominal growth, the world is facing a sharply deteriorating liquidity condition because the U.S. Treasury must replenish its account at the Fed from levels as low as $111 billion in mid-August, $156 billion in early September and $196 billion in mid-September to near $400 billion. Draining $250 billion of liquidity within two to three months could shock the financial markets, even if the Fed cuts rates. (Steve here: In 2015, Congress mandated that the Fed keep $400 billion of cash in their piggy bank in case of a Government shutdown or a crisis-like event. Last December the Fed’s balance went from $400 billion to $111 billion. That’s money that is injected into the system. A QE-like effect on markets. When they have to replenish the piggy bank, they sell more Treasury debt and put the cash proceeds back in the piggy bank. That’s like a quantitative tightening that pulls money out of the financial system. I believe the recent hit to the money market system is partially a result of the Treasury’s recent actions.)
- As they did in late 2018 and early 2019, the Fed and global central bankers will respond aggressively and that will put a floor on the downside. He believes this is a pattern we will be in for some time. Market support will be very much dependent on the Fed’s, central bankers’ and policymakers’ responses.
- Like Dalio, he believes we sit late in a long-term debt cycle and such cycles present significant challenges.
- China, the engine of growth to the world, is the major driver of the global economic slowdown. Their private market debt has peaked and they are stuck in terms of their ability to stimulate more growth. Trade wars are a concern.
- He believes gold is in a secular long-term bull market, but expects a short-term sell-off from recent highs. He likes gold on dips.
- He doesn’t see a 2008-like crash. More of a range-bound equity market with big swings up and then down and then up again. An environment that favors active management over passive. He thinks value is a better place to be over growth and shows you how you might time your entry.