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Felix Zulauf – Barron’s interview.

December 27th, 2010 Admin Leave a comment Go to comments

Swiss investor and frequent Barron’s Roundtable participant Felix Zulauf was featured in the lastest Barron’s interview, a piece entitled, “The Pain of Deleveraging Will Be Deep and Wide”.

Here’s an excerpt in case you missed it:

Barron’s: It’s been an unprecedented time in the financial markets, with Lehman filing for bankruptcy protection, Merrill Lynch being bought by Bank of America and AIG getting rescued by the U.S. government. What’s the fallout going to be?

Zulauf: The leveraging-up in this cycle is reversing, and we are now deleveraging. When a huge system — that is, the global credit system dominated by the investment-bank giants that have been the major creators of credit in the last cycle — turns down, the fallout is going to be terrible.

Deleveraging is a very painful process, and will run longer and deeper than anybody can imagine. I’ve been fearful of this.

So far, what we’re seeing is the pain in the financial system. Later on, we’ll see the echo effect of the pain in the real economy. I can’t understand economists talking about no recession or mild recession. This is the worst financial crisis since the 1930s. It’s different than the ’30s, but is the worst since then, and the consequences will be very, very painful for virtually everybody in our economies.”

What I found surprising about this piece is that Zulauf (who always seems very on the mark in his usual Barron’s appearances) spoke in favor of the recent US government bailouts and the latest plans by the Treasury to purchase mortgage-backed assets from the banks.

In fact, Zulauf added that in order for the plan to work, the Treasury purchase plan should be “at least $1 trillion in size” and accompanied by Fed rate cuts.

He seems to be taking the so-called pragmatist’s view of a need for government intervention in the market, in order to avoid the much-feared and widely-trumpeted global financial meltdown that may result in its absence (as the backers claim).

Anyway, have a look for yourself and see what Zulauf has to say about the bailouts, the financial deleveraging process, the global economy, government debt and long-term interest rates, and more.

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