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Felix Zulauf was profiled in this week’s Barrons and the bearish fund manager is now beginning to sound downright apocalyptic.  The problem is, he’s had the macro picture nailed far better than most others.  He recently told the magazine:

“I predicted in the Midyear Roundtable (“Buy Low, Stay Nimble,” June 13) that the stock market would go to a low in the fall. The next few weeks will be extremely volatile. I expect the market to go below the latest lows in September. The central bank will come in to provide liquidity, but timidly at first because the Fed was bashed for QE2. After the fall low, equities will recover part of what they lost into the turn of the year and then fall again. Economies around the world most likely will be in recession next year.

Once the S&P 500 falls to 1000 or below in the first half of 2012, the Fed will come in and try to support the system. Eventually the ECB [European Central Bank] will try to do the same thing in Europe. The damage in Europe will be greater, as Europe’s financial system is even weaker than the U.S.

…Confidence in our currencies, policy makers and central banks is going down the drain. That will be reflected in a rising gold price. I have long said this isn’t an environment for investing in stocks. Hold cash in the form of short- to medium-term Treasuries. Own a lot of gold, and don’t have debt.”

I can’t say I totally agree.  Zulauf is known for saying that high inflation is the ultimate endgame here.  I think it is more likely to end in another deflationary sinkhole like 2008 as opposed to a hyperinflation scare.  And while I continue to believe the US economy will muddle through, I am increasingly concerned about the situation in Europe.  Their leaders are so far behind the curve that you just can’t help but think back to 2008.  Add in the emerging market slow-down and we’re getting what has the potential to become a pretty potent and nasty mix.

Source: Barrons

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