Felix Zulauf: A last gasp for stocks

Felix Zulauf, a former UBS strategist who founded his own hedge fund in 1990, is often gloomy, but also often right. He issued a bearish macro call in early 2008 and predicted a market rally early the following year. Judging by his remarks in the Barron's mid-year roundtable, he's still downbeat.

Things appear to be getting better slowly, but "the world economy is weaker than people think it is", he reckons. Bond yields "won't rise"; indeed, they "might come down in major countries by late summer". Stocks could rally into the summer, but this will be a last gasp, while emerging-market currencies and equities, along with commodities, are set to keep disappointing. "It is time to reduce portfolio risk."

Europe has been, and will remain, "a disaster". It will only come right if there's a political union to complement the joint currency, but at present Germany is only inclined to help the weaker states "on a piecemeal basis" so they can't recover properly. France could be the next flashpoint as it is uncompetitive and unwilling to galvanise growth with structural reforms. "I wouldn't be surprised if Europe had another crisis by January."

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