Zulauf pans China, likes gold and Treasurys

Many have predicted the demise of the China boom and were early, says Felix Zulauf at the Barron's Roundtable, but now it's more obvious "it's in a terminal stage." He's playing it by shorting the iShares MSCI Hong Kong ETF (EWH). The Hong Kong banking system is heavily exposed to mainland China, so when China goes, there could be a banking crisis in Hong Kong. The HK$ is pegged to the greenback, so the HKMA will defend it by hiking rates, smacking the heavily rate-sensitive economy there.

It's been nearly a decade since Zulauf recommended gold miners, but now's the time the buy the GDX, he says. Gold (GLD) is "washed out ... those who wanted to sell gold have sold it ... Western investors, asset-allocators, ETF players have all sold their gold. The buyers? "Physical gold moved from Western to Eastern hands."

After 30 years of declining yields, Zulauf isn't a secular bull on U.S. Treasurys, but sees mis-pricing in government paper, noting French 10-year notes yield 50 bps less than comparable U.S. ones. The 10-year Treasury yield could easily fall 75-100 bps and he's a buyer of TLT.




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Comments (25)
  • thodoris91
    , contributor
    Comments (62) | Send Message
    "those who wanted to sell gold have sold it"
    I read this for months
    18 Jan 2014, 08:26 AM Reply Like
  • Doug Eberhardt
    , contributor
    Comments (4966) | Send Message
    From a retail level, I don't have any clients selling gold or silver. It's insurance for their portfolios no matter what the price does in the short term.


    The mounting wall of debt is reason alone for insurance, but as 2008 shows, anything can happen at any time, and yes, gold ended the calendar year positive in 2008, on its way to record highs.


    If the one's who run our monetary system and our political system didn't see 2008 coming, what makes anyone think they will see the next financial crisis coming?


    How is it not one financial media outlet or anyone in Congress ever addresses the elephant in the living room; the over $17.33 trillion National Debt and the effect any rising rates will have on the budget? How is it that Congress when they do their 10 year budget projections never address the potential of higher rates and the effect of increased interest payments on the debt?


    Do people really think the U.S. is the same as Japan and will weather through such an increase in Debt to GDP when we are a net importer and owe everyone else rather than own? See Japan and the Yen for what's to come.


    Disclaimer: this is not a post about either or; stocks vs. gold. It is about adding physical gold as insurance to one's portfolio if you have not done so.


    Is this German regulatory accusation a game changer?


    "Germany’s top financial regulator said possible manipulation of currency rates and prices for precious metals is worse than the Libor-rigging scandal, which has already led to fines of about $6 billion."




    I'm sure some would think so.


    NIce to see Seeking Alpha editors post a positive opinion on gold. They must have read my comment yesterday when they posted a negative article with gold up over $10.


    18 Jan 2014, 09:54 AM Reply Like
  • thodoris91
    , contributor
    Comments (62) | Send Message
    i also thing gld is manipulated and there will be an increase in its price on a long-term horizon. but I think this phrase is been said many months now. also the fact that noone sells means nothing to the price. put options can do a better job
    18 Jan 2014, 10:22 AM Reply Like
  • Doug Eberhardt
    , contributor
    Comments (4966) | Send Message
    " also the fact that noone sells means nothing to the price. put options can do a better job."


    thodoris, I can assure you that 90% of investors if not more don't know anything about put options. Taking it one step further, I can assure you that 99% of my clients don't know anything about put options. I fulfill a niche for delivery of physical metals.


    Lastly, supply and demand does have something to do with price. Ever hear of the Hunt brothers?
    18 Jan 2014, 01:14 PM Reply Like
  • Moon Kil Woong
    , contributor
    Comments (13623) | Send Message
    True that's a weak argument. Gold just churns around and ends up in government coffers who now lend them out for people to sell paper gold. The only real bottom for gold is when miners can't afford to mine more and the top is when sellers are allowed by someone or some government to borrow more gold and/or dump more gold paper often which is not backed by actual gold. Gold is a very big boys game rigged to squeeze gold out of the hands of everyone but governments.
    19 Jan 2014, 12:28 AM Reply Like
  • kmi
    , contributor
    Comments (4744) | Send Message
    There were strong catalysts to gold's run-up, and it was both easy to see, and easy to catch the majority of the move. There are a lot of believers in the 'impending hyper-inflation by dollar devaluation' theory who are still hanging on to gold, but if you are looking to make money, gold isn't going to make a similar move anytime soon, and when it does, how hard is it to reallocate?


    I don't buy the bullish gold thesis at all.
    19 Jan 2014, 10:47 AM Reply Like
  • Doug Eberhardt
    , contributor
    Comments (4966) | Send Message
    kmi, Not if it includes "'impending hyper-inflation by dollar devaluation."


    But if it includes this, http://bit.ly/5BsyVl‎ or the Fed Balance Sheet...then a little insurance wouldn't hurt if you have none.


    And one can't really rely on a TARP type program to get past the U.S. taxpayer any longer either. Fool me once...


    But we got time. I'm still dollar bullish as I have said and after this run up in price then you can reallocate.
    19 Jan 2014, 11:47 AM Reply Like
  • simplevalue274
    , contributor
    Comments (123) | Send Message
    I like Martin Armstrongs view of it. The bottom is probably around 1000 + or - some. All the longs will turn into shorts then the miners will start hedging again which will provide the fuel for the cycle to turn on the buying. As for timing I have no idea. Don't own any, just an observer. Fwiw I think it's better to be in stocks. Same inflation hedge but you get productivity and cash flow gains from divs etc. money moving out of govt bonds to equities. Why would you want money in the give bonds when the govts are in trouble.
    18 Jan 2014, 09:42 AM Reply Like
  • DeepValueLover
    , contributor
    Comments (11388) | Send Message
    It is obvious that selling pressure in gold has fallen off of a cliff over the last few weeks. The time to be short gold was 52 weeks ago.
    18 Jan 2014, 09:48 AM Reply Like
  • Mattster
    , contributor
    Comments (165) | Send Message
    Sure, go short a market (Hong Kong) that is going up and just broke out to the upside. See what great investment advice that is. Why not just wait until a downturn first, consider it your insurance policy against being wrong.


    When people are scared they tend to blame the things they least understand, for Americans this is China. Funny thing is it is only the USA who has been so irresponsible to bring down and destroy the world economy. If people weren't so biased against others they'd realize that they should be most afraid of themselves.


    In the end this guy could give a damn about China, he just wants to be known for being right about something someday. Its all ego, not about helping you. Think this guy cares if you miss the next 5 years of the rally?
    18 Jan 2014, 10:33 AM Reply Like
  • joenobody02
    , contributor
    Comments (17) | Send Message
    Hong Kong economy is heavily influenced by real estate. It is also a place where the mainlanders park their ill-gotten gains.
    18 Jan 2014, 04:44 PM Reply Like
  • Zeus2012
    , contributor
    Comments (714) | Send Message
    If he is really bearish on the Chinese economy & Hong Kong, he should really be shorting the gaming names like $LVS, $WYNN & $MGM. Those names have gone parabolic because of the growth in Macau. The state owned banks in China will not pop but rather, it will be more of a slow fizzle like the Japanese banks a decade ago as they are all state owned.
    18 Jan 2014, 10:34 AM Reply Like
  • 33399939
    , contributor
    Comments (133) | Send Message
    The prob with guys like Zulauf and those on KWN are they are a broken record, gold going up gold going up gold going up...oooppps sry gold down 40% but don't worry buy more, gold going up. Gold silver will prob have its day again, but make no mistake all it is is a trade and as doomsday insurance in shiny metal is vastly over rated. But I'll take that bet, I will own china and not buy gold.
    18 Jan 2014, 10:37 AM Reply Like
  • nooseah
    , contributor
    Comments (752) | Send Message
    Yawn ..
    18 Jan 2014, 05:25 PM Reply Like
  • 33399939
    , contributor
    Comments (133) | Send Message
    Me too
    18 Jan 2014, 06:00 PM Reply Like
  • convoluted
    , contributor
    Comments (2503) | Send Message
    It seems to me that the gold debate is always an 'either/or' and 'when' focus. I did reasonably well shorting gold months ago, but understand that long and short are simply like the seasons. At the moment, I'm mostly neutral, collecting option premium on positions that cancel each other out, leaving the 'gold' in my expiration pan.
    But, for those that think in one-dimensional terms, I would tend to bet on gold miners getting a bit of a bounce. A good way for one to play a longish theme would be to sell LEAP at-the-money puts, use that income to buy shorter term calls, and buy a proportionate amount of DUST. One can trade the DUST-perhaps daily-depending on volatility. Consider the 3:1 inverse leverage on DUST, and you might sell, say, 6 GDX puts, for 50 shares of DUST. Note that I did not seek to make this perfectly neutral, and adding, say, 90 day GDX calls might require more DUST. The reason is a bit complicated, in that you have to be patient with the theta destruction of the LEAP puts, and adding too much DUST could cause a novice to make a bad decision-if GDX really takes off.
    At the moment, I am actually short GDX shares against 6 month short put options, and bull call spreads. I have positions on both NUGT and DUST as well. Since I retired a couple of years ago and travel around, I can't say that I have the absolute optimal position. But, I don't have to report to investors any more, so as long as I'm making a few bucks, I'm fine with it.
    The bond position is rather contrarian. I closed short puts on TBT a couple of weeks ago, and sold some TLT puts. I agree with the gentleman above that the deficit is so complex and socially multi-dimensional, that one would draw inferences from Rome ignoring the barbarians-until it was too late. On the other hand, government has morphed into an omnipotent central planner, utilizing a limitless supply of fiat tender, in a battle to regain 'equilibrium.' I suppose an interesting question will relate to whether yields fail to rise as so many anticipate. I have a neutral trading position on that facet, at least for the moment.
    18 Jan 2014, 10:39 AM Reply Like
  • jakoba
    , contributor
    Comments (345) | Send Message
    Turkey is already down 40% since May 2013, and the Turkish stock market is trading at only 1/4 of its GDP and barely above its annual export revenue. This is not the time to be bearish on Turkey. That was a year ago. But then Zulauf was bullish on emerging markets. I think all the bad news are priced in.


    Similarly for China. The ETF FXI is down 15% over the past 12 months, while Europe, Japan and US was up around 20%.


    If it means something, anything, that 2/3 of the global population believes that China will eventually become the leading superpower (replacing US) or already has this role, and if IMF´s estimations that China´s nominal GDP will be on par with US in 2020, then I think also its stock market should be worth more than 1/7 that of the US. Remember that the value of the Japanese stock market in the late 1980´s actually exceeded that of the US. Why cannot the same happen with China? China´s GDP was historically 1000-1870 on average 8 times bigger than Japan´s.


    There may be bumps in the road and huge volatility in the Chinese stock market. But again, I don´t think this is not the time to be bearish on China. That was a year ago. Markets are priced for the future, not the present.


    I think people like Faber and Zulauf being so right for many years, have themselves become "bubbles" that will now be "corrected" so they will be wrong for many years. This year I will listen to the one´s at Barron´s roundtable with the worst track records.
    18 Jan 2014, 05:09 PM Reply Like
  • idkmybffjill
    , contributor
    Comments (1920) | Send Message
    jakoba, do you have any recommendations on Turkish companies to go long on? Where can we find financials? Or perhaps just go long on a Turkish all-stock market ETF?
    19 Jan 2014, 01:24 PM Reply Like
  • june1234
    , contributor
    Comments (4504) | Send Message
    Nobody is arguing with any EM's growth rate which any western economy can only envy. EM economies from Brazil to Turkey have leveraged very heavily since 08 taking advantage of all that cheap money. PBR out of Brazil is down bout 40% yr over yr. That company is in trouble.
    19 Jan 2014, 02:01 AM Reply Like
  • Barbairic
    , contributor
    Comments (31) | Send Message
    China's rolling over and gold is washed out. So short china and go long gold miners? I thought china had been the big gold buyer? If there is a reset over there what happens to gold price? It sure got slammed over here in 2008 along with all the miners.
    19 Jan 2014, 03:11 AM Reply Like
  • DeepValueLover
    , contributor
    Comments (11388) | Send Message
    (TBAR) is the gold answer to your prayers!!




    Pairing this holding 2:1 with (http://bit.ly/MB7Atz) and you will do OK as long as gold is in an uptrend or even neutral.
    20 Jan 2014, 10:35 AM Reply Like
  • sniper6dre@gmail.com
    , contributor
    Comments (4) | Send Message
    You might also recommend the Swiss Franc ETF. By law, the value of Swiss Francs in circulation or on deposit is backed at least 40% in Gold bullion held in the name of the Swiss government.
    19 Jan 2014, 10:27 AM Reply Like
  • Mike Holt
    , contributor
    Comments (1869) | Send Message
    The fact that some still don't acknowledge the debt problem now facing China and that is also likely to lead to either a soft landing or a hard landing in the near future evidences that Faber, Zulauf and others featured in the Barron's Round Table Discussion this weekend are not too early in suggesting short sales of certain Chinese stocks. The creation of "A" share ETF's will create not only opportunities for foreigners to buy "A" shares, but also to short them.
    19 Jan 2014, 11:59 AM Reply Like
  • petten
    , contributor
    Comments (121) | Send Message
    The Zulauf guy exactly one year ago (beginning of 2013) in the same Barron's round table was bullish on Brazil, which turned out to be one of the worst investments last year.
    19 Jan 2014, 08:05 PM Reply Like
  • nooseah
    , contributor
    Comments (752) | Send Message
    Just buy gold. Dont worry about the price. Put it somewhere safe and forget about it. And, finally, avoid blogs where dim-witted folks bang on and on and on about gold's death.
    19 Jan 2014, 08:39 PM Reply Like
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