When Felix Zulauf Talks, People Listen

A Special Update from One of the Greatest Prognosticators of Our Times - Article #110

In this 12-minute article, The X Project will answer these questions:

• I. Why this article now?

• II. What is Felix Zulauf’s prediction regarding the short-term outlook for stock markets in 2025?

• III. How does Zulauf see the geopolitical and economic landscape evolving?

• IV. What fiscal and monetary policy shifts does Zulauf anticipate, and what impacts will these have?

• V. What are Zulauf’s insights into the bond market, and how does he suggest investors approach this asset class?

• VI. What is Zulauf’s strategy recommendation for equity investing in this volatile market environment?

• VII. Which market sectors and geographical regions does Zulauf favor going forward?

• VIII. What long-term outlook does Zulauf provide, and how should investors adjust their strategies?

• IX. What does The X Project Guy have to say?

• X. Why should you care?

Reminder for readers and listeners: nothing The X Project writes or says should be considered investment advice or recommendations to buy or sell securities or investment products. Everything written and said is for informational purposes only, and you should do your own research and due diligence. It would be best to discuss with an investment advisor before making any investments or changes to your investments based on any information provided by The X Project.

I. Why this article now?

If you are a Gen Xer like me or older, you will undoubtedly remember E.F. Hutton’s commercials from the 1970s and 1980s, “When E.F. Hutton Talks, People Listen.”

Less well-known among the broader population is Felix Zulauf, one of the most significant prognosticators of our times. In recent years, Zulauf has made his rounds to roughly a dozen podcasts and YouTube channels in December, sharing his outlook for the year ahead.

I have learned that when Felix Zulauf talks, smart people in the know listen. As such, I have covered his outlooks over the past two Decembers in these articles:

• Santa Felix Came to Town!!! - Santa who?? And what gifts did he bring us?

• ’Tis the Season: Felix Zulauf Shares His Annual Outlook

This year, given the unusual level of market volatility and uncertainty, Zulauf has decided to make a few special appearances to provide a mid-year update to his outlook:

• Felix Zulauf: Build Dry Powder Until Fall & Then Get Long For A 2-Year Rally In Stocks on Adam Taggart | Thoughtful Money, April 18, 2025

• Recession Around The World: Market Correction Of ‘Cyclical Degree’ Not Over | Felix Zulauf on David Lin, April 19, 2025

• 2 Stock Market Scenarios for 2025 - Felix Zulauf on Reppond Investments, April 22, 2025.

In

Adam Taggart

’s intro to his interview above, Taggart says:

“Back in December, he predicted the following:

• that a contraction in global liquidity could set the stage for severe market corrections and increased volatility… well check

• that stocks would peak early in 2025 and then experience a 15 to 20% correction… yeah check

• that new US trade tariffs could lead to retaliatory measures from trading partners triggering a global trade war check especially in regards to China…

…so far he's three for three. He also recommended that investors start 2025 defensively, reducing equity exposure, avoiding long duration bonds, and instead load up on T-bills and gold. Again, this was a winning combination. So, who is this remarkably prescient forecaster? Well, none other than Felix Zulauf.”

Therefore, when Felix Zulauf talks, people should listen.

II. What is Felix Zulauf’s prediction regarding the short-term outlook for stock markets in 2025?

Felix Zulauf predicts considerable volatility and uncertainty in stock markets throughout 2025, describing it as a transitional year. He anticipates markets will face significant corrections, possibly retesting the lows experienced on April 7, which were marked by extreme investor pessimism. Zulauf describes two scenarios. The first is a retest of the lows, possibly dipping slightly lower, before the markets stabilize. The second is that markets continue to recover temporarily and subsequently face another significant decline driven by disappointing corporate earnings later in the year.

He supports this view with evidence such as the Bank of America global fund manager survey, which reported record pessimism and the most significant two-month drop in U.S. equity allocations seen in decades. Zulauf advises investors to preserve liquidity—“dry powder”—to take advantage of market lows. He stresses the psychological aspect of investing during volatile markets, where disciplined, contrarian actions (buying during downturns, avoiding panic selling) lead to superior long-term results.

Zulauf identifies the S&P 500 price level of approximately 4,500 as the potential low point under either scenario he describes. Specifically, he mentions the possibility of markets retesting or marginally breaking the lows near 4,835 set on April 7, possibly going down to around 4,500, before rebounding. He advises investors to become increasingly bullish and invest decisively if the S&P reaches this lower range.

III. How does Zulauf see the geopolitical and economic landscape evolving?

Zulauf emphasizes a significant restructuring in global trade, capital flows, and geopolitical dynamics, marking a decisive shift away from traditional globalization frameworks. The dissolution of institutions such as the World Trade Organization (WTO) and aggressive trade policies enacted by the U.S. under Trump have heightened global economic uncertainty. This shift has prompted multinational companies to pause investment decisions due to uncertain future trade conditions, contributing to global economic weakening.

Zulauf argues that this structural change is enduring rather than temporary. He identifies a paradigm shift in which former global trade and cooperation systems are fragmented into regional blocs or bilateral arrangements. This fragmentation will likely increase geopolitical tensions and economic volatility, compelling investors to reconsider traditional investment strategies and adapt to a more fragmented and uncertain global environment.

IV. What fiscal and monetary policy shifts does Zulauf anticipate, and what impacts will these have?

Zulauf forecasts a significant shift towards increased fiscal stimulation, particularly from major economies such as the United States, Germany, and China. He anticipates substantial tax cuts in the U.S., mainly aimed at stimulating consumption and economic recovery, alongside increased infrastructure and defense spending by Germany and heightened fiscal measures by China to combat ongoing deflationary pressures.

Zulauf suggests that these fiscal policies will be accompanied by accommodative monetary policies such as quantitative easing or yield curve management to maintain economic stability. The combination of fiscal and monetary stimuli is expected to boost nominal economic growth and raise inflation levels, subsequently inflating asset prices. Zulauf views these developments as essential to overcoming the short-term economic stagnation experienced in 2025, paving the way for stronger economic conditions in subsequent years.

V. What are Zulauf’s insights into the bond market, and how does he suggest investors approach this asset class?

Zulauf asserts the end of the 40-year secular trend of declining inflation and interest rates that previously supported the bond market. He sees current developments as structurally different and warns that bonds will become significantly riskier investments over the coming years. The rationale includes persistent inflation and rising interest rates driven by extensive fiscal stimuli and the erosion of the U.S. dollar's global reserve status.

Given these factors, Zulauf recommends a cautious approach to bonds. He advises investors to avoid long-duration bonds due to their sensitivity to rising interest rates and inflation. Instead, he advocates investing in short-term treasury bills and gold, which provide safer alternatives in an environment where bonds are expected to perform poorly. His bearish stance on bonds underscores the need for investors to adjust their fixed-income strategies significantly.

VI. What is Zulauf’s strategy recommendation for equity investing in this volatile market environment?

Zulauf promotes a tactical and contrarian investment approach, emphasizing the importance of maintaining liquidity to exploit market downturns strategically. He cautions against impulsive reactions to market sentiment and advocates disciplined investing by resisting the urge to sell during downturns. Zulauf’s approach involves actively monitoring market conditions and deploying capital when valuations become attractive after sharp corrections.

He suggests investors prepare to be fully reinvested by the end of 2025, expecting a substantial market recovery extending through 2026 and 2027. Zulauf's reasoning relies on anticipated extensive global fiscal and monetary stimuli underpinning market rallies. By employing this tactical approach, investors can capitalize on significant market rebounds, potentially pushing indices such as the S&P 500 to new heights around 7500.

VII. Which market sectors and geographical regions does Zulauf favor going forward?

Zulauf anticipates that foreign markets will outperform the U.S. market, predicting an end to the period of "U.S. exceptionalism." He attributes past U.S. market outperformance to unprecedented fiscal stimulus, which he argues is unlikely to continue at the same scale. Instead, he expects more significant fiscal stimuli in Europe and Asia, creating investment opportunities in these regions.

Zulauf favors industrial sectors and companies with protected domestic positions that stand to benefit from revised global trade dynamics. He expresses caution toward traditional technology platform companies due to regulatory pressures, taxation changes, and less favorable global trade conditions. Investors, therefore, should prioritize industrial and infrastructure-oriented sectors and international markets poised to benefit from shifting economic policies.

VIII. What long-term outlook does Zulauf provide, and how should investors adjust their strategies?

Zulauf remains bullish for the long-term horizon (2026–2027), predicting a strong cyclical market rally once economic and market volatility subsides. He anticipates aggressive global monetary and fiscal stimuli to reignite growth, inflation, and asset prices. These policies and adjustments in global economic structures are expected to create an environment conducive to significant asset price inflation.

Zulauf argues that investors must recognize and adapt to these long-term structural shifts, characterized by higher sustained interest rates and inflation. Strategic adjustments involve reallocating portfolios towards cyclical recovery sectors, international markets, and inflation-hedging assets such as gold. By aligning investment strategies with these structural changes, investors can better position themselves to achieve long-term financial success amid a dynamically evolving economic landscape.

IX. What does The X Project Guy have to say?

When Felix Zulauf talks, I certainly listen.

But I also listen to many others. No one is right all of the time. What Zulauf is saying now makes sense to me, and I believe he will likely be correct. His views are consistent with many others. No one should be trading their entire portfolios or net worth, but advice like this can be very beneficial at the margins and significantly impact your portfolio returns.

I launched The X Project in November of 2023 to curate, summarize, distill, and synthesize knowledge & learning at the interseXion of economics, geopolitics, money, interest rates, debts, deficits, energy, commodities, demographics, & markets - helping you know what you need to know.

The investment themes that I originally outlined in late 2023 are the same ones I continue to subscribe to today:

1. Overweight cash and short-term U.S. T-bills for optionality, given expected INCREASING volatility related to the remaining list below.

2. Bullish gold and gold miner equities

3. Bullish Bitcoin

4. Bullish oil and oil-related equities

5. Bullish natural gas and related equities

6. Bullish uranium and related equities

7. Bullish industrial-associated commodities and equities

8. Bullish agricultural-associated commodities and equities

9. Bullish industrial and primarily electrical infrastructure equities

10. Bearish long-dated U.S. and other Western sovereign bonds

I intend to act according to Zulauf’s advice by shifting some of my cash into other areas described above, particularly those underperforming, if and when the market re-tests and/or makes new lows.

X. Why should you care?

Suppose you do not understand and accept the paradigm shift underway and continue to think and believe that the next decade will resemble the past few decades. In that case, your portfolio and net worth are at risk, as are your mental, emotional, and psychological well-being.

Thank you for your subscription, especially if you are a paying subscriber. Your support is everything to The X Project and is greatly appreciated. If you agree, please do me the favor of hitting the like button and posting positive comments about my articles, assuming you have positive things to say.