Felix Zulauf: Europe will turn Japanese

As anti-euro parties gain ground, legendary investor Felix Zulauf sees a Japanese-style slump heading for Europe.

Felix Zulauf "accurately predicted last year" that growth would be sluggish, the dollar would rise and commodity prices fall, says Lauren Rublin in Barron's. His past calls have been pretty good too. He foresaw macroeconomic trouble for 2008, but was bullish on stockmarkets in early 2009. So what is the founder of Zulauf Asset Management saying now?

Last year the consensus expected economic growth to return to pre-crisis levels, says Zulauf in the Barron's Roundtable. But it didn't happen and won't happen this year either. A recession is unlikely, but growth in the US and elsewhere is likely to slow as deflation gathers strength and rattles confidence. Inflation has disappeared in Europe and could fall below zero in the US too.

Much of the world looks gloomy. China's investment and credit boom is slowing, which is having a knock-on effect across Asia. Industrial capacity there has been built up based on expectations of 10% growth in China. "The corporate sector in Asia is unprepared for this slowdown."

Europe remains a mess. Quantitative easing will merely take the pressure off governments to introduce painful, growth-boosting reforms. Germany "is moving backwards on reform. Italy and France aren't moving at all." The single currency is structurally flawed: it "acts as a deflationary straitjacket" for half of the European Union. In a few years, a popular revolt will have finished the euro off.

Already, anti-euro parties hold a third of the European parliament's seats. "I see no hope for Europe. It is going the way Japan did."As a result, interest rates will stay low, or go even lower this year, while major stockmarkets could suffer a correction of 10%-15% in the next few months. US earnings disappointments caused by a strong dollar are a likely potential trigger. The commodity cycle, then, remains bearish, but the outlook is bullish for gold.

Recommended

Could a stronger euro bring relief to global markets?
Currencies

Could a stronger euro bring relief to global markets?

The European Central Bank is set to end its negative interest rate policy. That should bring some relief to markets, says John Stepek. Here’s why.
24 May 2022
The end of the era of optimisation
Global Economy

The end of the era of optimisation

A focus on maximising returns has made economies too fragile, says Edward Chancellor.
23 May 2022
Do Kwon: the King of Crypto Lunatics
People

Do Kwon: the King of Crypto Lunatics

Cryptocurrency entrepreneur Do Kwon liked to ruffle feathers and stir things up in his industry. But the collapse of his empire has left investors des…
19 May 2022
Inflation is now at its highest since 1982 – is this the peak?
Inflation

Inflation is now at its highest since 1982 – is this the peak?

At 9%, UK inflation is at its highest for 40 years – and it’s not going anywhere soon, says John Stepek. That means you need to be much more active a…
18 May 2022

Most Popular

The world’s hottest housing markets are faltering – is the UK next?
House prices

The world’s hottest housing markets are faltering – is the UK next?

As interest rates rise, house prices in the world’s most overpriced markets are starting to fall. The UK’s turn will come, says John Stepek. But will …
23 May 2022
The Federal Reserve wants markets to fall – here’s what that means for investors
Stockmarkets

The Federal Reserve wants markets to fall – here’s what that means for investors

The Federal Reserve’s primary mandate is to keep inflation down, and lower asset prices help with that. So, asks Dominic Frisby – just how low will st…
25 May 2022
Should you be worried about energy windfall tax proposals?
Energy

Should you be worried about energy windfall tax proposals?

Calls have been growing for a windfall tax on UK oil and gas producers. It's a popular idea, but is it a good one? And what does it mean for investors…
24 May 2022