In the fall of 2018, Felix Zulauf, head of Swiss hedge fund Zulauf Asset Managment, said investors were facing the start of a “structural bear market.” In other words, not much upside and a downside that’s limited by central banks.
“When the market sells off 20%, 25% or so, they will come in to support it, and the market rallies again,” he said at the time. “Then it fades again and it goes deeper than the last time. This is a very serious, very difficult market to have.”
Shortly after that call, the stock market unraveled, only to start 2019 with a fresh assault on record highs. Zulauf’s take has been pretty much on point, and now, operating under the assumption that the current rally is, indeed, capped, he’s following up with a mostly grim assessment of what’s next.
Zulauf has certainly made some epic calls among his misfires over the course of his long investment career, including when he was a top exec at UBS and moved clients completely out of equities in 1987. But he’s not your garden-variety permabear, claiming success on every downturn. He also predicted a 40% rally in early 2009, which turned out to mark the bottom of the last bear market.
He’s back to his bearish ways in our call of the day, however.
In an interview posted on the Financial Sense blog, Zulauf says he believes a U.S.-China trade deal is likely, but any bullish impact on the market will be short-lived. Investors will then be faced with a sell-the-news situation.
Meanwhile, from a macro view, Zulauf says economists have been too upbeat about prospects for growth, and, as he’s been saying for a while now, the second half is setting up to be a rough one. He sees more negative surprises this year producing shocks that could ultimately hit all major economies hard.
Specifically, he’s looking for the U.S. to see a steep decline in growth, with China also suffering some headwinds.
“The current optimism that things are bottoming out by those who have been wrong for quite some time is premature,” Zulauf said in the interview. “I think the consensus will be disappointed again in the second half, and that will have implications for the corporate sector’s earnings situation.”