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Felix Zulauf continues:


“Over the last couple of months, central banks have woken up and they see the risks, particularly the move by the ECB here in Europe means that they are ‘all in’ now.  That means they will finance whatever it takes to not let the system go down.


For the short-term this gives you some assurance.  For the long-term it’s a different story because there is a cost associated with this....


Continue reading the Felix Zulauf interview below...




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“The cost is that the fiat currency, paper currency standard, is in the final stage of the ‘super cycle.’  Fiat currency systems always collapse at the end.  We are in that stage of the super cycle where things are accelerating.


I don’t know how many years we still have, but you can assume that central banks, as the ECB stated just recently, will do everything necessary to prevent a collapse of the system.  That means they will even finance bankrupt governments, they will finance bankrupt banks, they will finance every bankrupt entity that is important to the system.


That means they debase our paper currencies further and further, and in an accelerating way.  This is very bullish news for all of the gold holders of course.  A good year or so ago, gold had accelerated into a sort of a climax peak above $1,900.  It has taken almost a year to correct that sharp advance.


I think gold has absorbed the selling pressure very well, and has gone through a lengthy, cyclical corrective process, into the low $1,500s.  There was always a risk that it could break down once more to make for a climax low, but I don’t think this is likely anymore.  The odds of that happening have decreased.


The recent change at the ECB that they are ‘all in’ is a big plus for gold because it’s a big negative for paper currencies, and gold is just the other side.  So while gold has run up into the $1,700s, we could any time see a setback of $50 or $60 or so.  That would be normal.


But from now on buying the dips is the right strategy because I think we have actually entered the next cyclical bull market within the secular bull run that we are still in.  I think this has much higher highs to go.”


When asked how the collapse of the fiat system will unfold, Zulauf responded, “That’s a difficult one because I cannot tell you when it occurs, but usually in a super cycle you have to debase your currency more and more.  You monetize your debt more and more.  Your level of debt on a public-sector basis, and on a system-wide basis goes higher and higher until the system collapses.


I think we first see, over the next couple of years, the transfer of government debt from private balance sheets to central bank balance sheets.  I do believe the 30 year bull market in government bonds is over.  I mentioned in the media (Barron’s) Roundtable that one should be selling half of what he owns, and should sell the other half in September at the latest.


I think the whole game is over.  Bonds are very overvalued.  The real return is negative.  Normally bonds yield at least as much as nominal GDP growth.  Nominal GDP growth at the present time is about 3% or 4% in the US.  I’m not suggesting we go right there tomorrow (in terms of yield), but bonds are very overvalued. 


I have stayed bullish, but it’s over.  The game is over and we have to look for other assets.”


Felix also predicted a plunge in stocks:  “I think over the next two years or so we will probably see 1,000 in the S&P again (a decline of more than 30%).”


Felix also added: “Obviously policymakers are completely lost in this environment.  Therefore, when the market forces are such that it jeopardizes they system, and they dislike it, then they change the rules.  For instance, if interest rates of government paper shoots up, like it was the case for Spain or Italy, then the central bank comes in and provides the money, and buys whatever it takes to move the interest rate to levels it likes.


When you do that again and again, you distrust the invisible hand of Adam Smith, so to speak, and you trust the hand of the political class in central banks and in governments.  I really doubt that bureaucrats know better than the markets how to allocate money and assets in our world. 


Once they start doing that, and they do it more and more and more, there are going to be, and there already are, misallocations of major proportions, and not to the benefit of our system.  So that’s how they create a bigger and bigger, growing monster.”


In his audio interview, Felix Zulauf goes into great detail about what investors should expect as the system implodes and, more importantly, how they can protect themselves.  The legendary money manager and two decade Barron’s Roundtable panelist also discusses central planners, systemic collapse, what investors should be doing with their money right now, gold and much more.  The extraordinary KWN audio interview with Felix Zulauf is available now and you can listen to it by CLICKING HERE. 


© 2012 by King World News®. All Rights Reserved. This material may not be published, broadcast, rewritten, or redistributed.  However, linking directly to the blog page is permitted and encouraged.


The interviews with Felix Zulauf, Rob Arnott, Michael Pento, Gerald Celente, James Dines and Marc Faber are available now.  Also, be sure to listen to last week’s line-up of other KWN interviews which included James Turk, Art Cashin, Egon von Greyerz, Sean Boyd, John Hathaway and Eric Sprott by CLICKING HERE.


Eric King

KingWorldNews.com

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