Felix Zulauf – one-half of the nucleus of the Barron’s Roundtable – was tracked down for his mid-year take. He believes European markets are cheap – but not necessarily good buys…
Adjusted for inflation, Italy trades at levels last seen in Mussolini’s era. Greece trades at 1.5 times the Shiller P/E ratio [the market’s current price divided by the past 10 years’ inflation-adjusted earnings]. Most European markets are good value but that doesn’t make you any money. The structural framework is wrong and cyclical dynamics are still pointing down.
His long picks are cash, gold, and Aussie bonds – not too far from the gold, women, and sheep portfolio recommended by Stephen Colbert!
How bad will things get, asks Barron’s?
The potential exists for a broad-based nationalization of the credit system, capital controls and dramatic restrictions on financial markets. Some might even be closed for some time.
We are witnessing the biggest financial-market manipulation of all time. The authorities have intervened more and more, and thereby created this monster. They might change the rules when the game goes against their own interests.
We are in a severe credit crunch. It starts when the weakest links in the system can’t finance their activities. Then you have a flight to safety into Treasuries and German bunds, compounded by a quasi-shortage of good collateral. That’s why bond yields have fallen so low. This isn’t an inflationary environment but a deflationary one.