In case you missed this weekend’s Barrons, there was an update of the roundtable pundits. One of the few whose predictions continue to pan out was Felix Zulauf of Zulauf Asset Management. Zulauf’s recommendations at the beginning of 2012 included shorting metals, industrials, banks and technology (which has not panned out). He also recommended defensive long positions (see the full report card here).
His overall outlook hasn’t changed much. He still thinks the Euro is in the process of imploding, Europe remains in recession and China is slowing. So what’s an investor to do now? Zulauf likes cash and gold:
What is an investor to do in the face of this unpleasant news?
I am sticking with my January recommendations. In the short-term, equity and commodity markets are making a low. They are oversold. The euro zone will come up with new quick fixes later this month and markets will attempt to rally. But I see a cyclical bear market continuing well into 2013.
I would hold lots of cash, preferably in U.S. dollars. While I expected Treasury yields to hit bottom in the fall, I would take some profits and not buy new bonds. Sell the rest in the fall, and use a stop-loss order to protect profits if you bought the 10-year when it was yielding 2.20% in January, as I recommended. Stick with Australian three-year government bond futures. This is a direct bet on China’s weakening, and short-term rates could fall further. I also continue to recommend buying gold if it breaks below $1500. That could lead to a quick shakeout into the $1300s, but gold will offer protection in coming years because it is true money.
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.
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