Transcript of Felix Zulauf’s opening remarks on the Grant Williams / Bill Fleckenstein End Game podcast — Episode #9

(the publishing of this transcript is NOT associated with the End Game podcast nor with Felix Zulauf — the full podcast can be found at this link: — more on Felix Zulauf at this link:


“Before we get going here’s the bit where I remind you that nothing we discuss during the End Game should be considered as investment advice, this conversation is for informational and hopefully entertainment purposes only. So while we hope you find it both informative and entertaining please do your own research or speak to a financial adviser before putting a dime of your money into these crazy markets and now on with the show. Welcome everybody to another episode all the end game joining me as always my partner in crime Bill Fleckenstein.”


“Well I do not know the future of course, but I think about it, I think about it and I do believe we are trapped because based on the demographics we see in the OECD countries plus China, it’s impossible to create the economic growth that the system needs to function properly for the next the 5 to 10 years or whatever, so something has to happen.

First we have tried to devalue currencies; we have tried to bring interest rates down to zero or below by monetary stimulation, but nothing worked. We didn’t have the economic growth we needed; we didn’t get the inflation we needed to get the debt down relative to GDP and all that sort of thing, so now we bring on the fiscal side I believe.

So far what we see on the fiscal side is gigantic but it’s not stimulus, it’s support but it’s not stimulus, most people misunderstand that. The current fiscal support is simply replacing most of what has been lost in income by the corporate and the household sector and it’s not more than that. I think they have to do more than that, so today’s Financial Times (Oct 5, 2020) quoted the OECD and the IMF calling for more fiscal stimulus to bring economic growth along and I think they will eventually do a lot more.

If you do not have the fiscal stimulus that is needed, then there is no way we can save our system as it is. If they bring on stimulus as is needed to create the growth then of course debt, government debt explodes to even higher levels and not the only government debt explodes but also the government share of our economies. In the second quarter for the U.S. economy government share of GDP, nominal GDP, jumped from the mid twenties to the upper forties percent. In Europe, the eurozone has on average, has about a government share of 50 percent, France is very high up with a few Scandinavian countries in the 55–58 percent. And I think that share has jumped by another 10 percent, at least, if not more, so that means the government share is already bigger than the private sector in those economies. And that’s why I’ve been calling for quite some years that we are moving into a planning economy. It’s government led, it’s government manipulated, it’s government intervened. The free market is pushed out and the planning guys are running the show.

The fiscal authorities, the governments, as well as the central banks, they work together and they are running the show and this is what is. We lose our freedom because when they do that you get a lot of unpleasant surprises that come out of market mechanisms that are still to some degree working and of course those unpleasant surprises cannot be (tolerated). And therefore they manipulate and they intervene more, they regulate more and they dictate more etc., so I think that’s the path we are going. Usually in a situation like this when you go through history, you usually end up in hyperinflation and then monetary reform. The demographics we have, it’s very difficult to create hyperinflation, they have tried now for some years. Once we get up to three, four, five percent inflation, if they can achieve that, then there is a chance that we could have a much higher inflation when the central banks begin to directly finance of the governments as the Brits have announced they are doing or they will do and some others as well; Brazil I think is another one.

So the weaker, the structurally weaker economies like Brazil, Turkey etc., they will most likely run into hyperinflation. I’m not sure the industrialized economies can achieve that, what is more likely in my view, and I’m not 100 percent sure about that. I think they will at some point try to get rid of cash money, the paper and make all the money electronic and then they can guide us through monetary reform, we do not know what it looks like, but the bottom line of that will be that a lot of people will lose a lot of money, that’s for sure. Those who are stocked with nominal investments, they lose a lot of money, those that are invested in real assets may do better or will do better but they will also lose money. So I think there is no winner coming out of this and if you knew exactly what they would do, the authorities, and you did the right thing and you came out as a big winner, I guarantee you that all the profits you made would be taxed away by the authorities.

So there is no real winner coming out of this, all you can do is lose less than others, that’s how I see it over the long term and I think that this situation is not just economic. You know it backfires into the social arena of course; it becomes very political because the policies that they are applying are really creating a bigger, an ever bigger rift between the haves and the have-nots. And this leads to ever more socialist policies and redistribution policies etc., and that in turn makes the whole system less efficient and makes the whole economy less prosperous and therefore we are all losers, we end up in a in a race to the bottom, so to speak.

This is along the lines I’m thinking but I do not know exactly what the exact next steps will be, I mean the next steps next year I think will be a lot more fiscal supports. That’s what I expect and I think monetary policy will remain easy for some years so that’s the combination for the next few years and then you have to mix it all up on the geopolitical situation that is not very stable and is in flux and you have the fight between the Chinese and the U.S. and potentially if Trump gets re-elected I think he will take on Europe in the next term. It’s probably less dangerous if Biden gets elected because Biden will take the U.S. to the European socialist model. So then the risks for tensions are probably less. But I think there is a move away from the globalization trends that we have had, we have the movie running backwards, we have a regionalization, I think China has realized that it doesn’t make a lot of friends when they treat the rest of the world as aggressively as they did. So I think they are focusing on the short term for the next few years, they are focusing on Asia to strengthen their position in Asia to make sure they can integrate Taiwan, which could play havoc with the markets and geopolitics. But they need the semiconductor industry that is located in Taiwan. And I think the U.S. is also turning inwards.

The big loser in all of that is Europe, Europe is the most exposed to exports, it is a large net exporter and it is getting squeezed by both by the Chinese and by America and I think America will not tolerate, even Biden will not tolerate the trade surpluses that Europe is running against the U.S., so they will try to bring the dollar down to a level where the euro gets higher and then the trade surplus disappears, more or less. And if the trade surplus disappears it is a deflationary shock to the European economies and then you have the risky game whether they can stay together in that mis-constructed EU and euro etc. So there is a lot of moving parts in this whole scenario and I think for macro guys it’s going to be a fantastic 5 years, we saw very big moves but one should not have firm preconceived ideas what exactly and when exactly he has to apply as a trade, I think you have to be very open minded, you have to think through several scenarios and then be ready when the opportunity appears, to shoot sharp.

The problem in all of that, is that you play in markets that may not stay free markets anymore and therefore the logical consequences that you would expect in markets may be prevented by government intervention, be it market intervention or regulation intervention or whatever, so that’s the tricky part of it, that the game is not the game that plays to the same rules over the next 5 years as they are in place today. The rules are going to be changed constantly and that makes it so difficult.”



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