Introduction: Dr. Marc Faber was born in Zurich, Switzerland. He went to school in Geneva and Zurich and finished high school with the Matura. He studied Economics at the University of Zurich and, at the age of 24, obtained a Ph.D. in Economics magna cum laude. Between 1970 and 1978, Dr. Faber worked for White Weld & Company Limited in New York, Zurich and Hong Kong. Since 1973, he has lived in Hong Kong. From 1978 to February 1990, he was the Managing Director of Drexel Burnham Lambert (HK) Ltd. In June 1990, he set up his own business, MARC FABER LIMITED, which acts as an investment advisor, fund manager and broker/dealer. Dr. Faber publishes a widely read monthly investment newsletter "THE GLOOM, BOOM & DOOM" report which highlights unusual investment opportunities. A regular speaker at various investment seminars, Dr. Faber is well known for his "contrarian" investment approach. He is also associated with a variety of funds.
Anthony Wile: Hello. Thank you for talking with us again. How is your advisory business doing? Are you pleased with the results of your trades and forecasts?
Marc Faber: My business is doing fine, my newsletter is doing fine and my forecasts are doing fine.
Anthony Wile: Tell us what's happening with gold, generally speaking.
Marc Faber: As you know, gold went up from $262 in 1999 to $1921 in September of 2011. Since then we've been correcting. We're now around $1200. I think gold compared to other assets is relatively inexpensive whereby all asset margins have been inflated by central banks around the world.
Anthony Wile: Where do you see it going from here?
Marc Faber: I don't know whether gold will go up or down in the next three months but I think that in the longer term gold will go up because central banks will continue to print money, so the purchasing power of money will depreciate.
Anthony Wile: Same thing with silver and other precious metals?
Marc Faber: I talk about gold and include all the other precious metals, which I do not include within the commodities complex. They don't depend on industrial demand, which for industrial commodities has been weakening because of the Chinese economy slowing down. But precious metal is something special. It is an insurance policy against the stupidity of central bankers.
Anthony Wile: What about other commodities? Anything to be particularly watching there?
Marc Faber: I think agricultural commodities are relatively low but they're volatile and for individual investors to play agricultural commodities is not that gainful. The carrying cost is high and you have to time your entry to market very well and so forth. My recommendation for individual investors is, as I always say, investors have to diversify. They should not put all their money into bonds, they should not put all their money into NASDAQ stocks, they should not put all their money into any one thing. They have to diversify between equities, bonds, real estate, cash and precious metals.
Anthony Wile: When it comes to real estate, is there any particular location you would recommend people consider?
Marc Faber: In Europe, commercial properties. But again, this is not for individual investors because individual investors can't buy a $50 million or $100 million building. In general, commercial properties in Europe have a huge yield strength compared to government bonds and cash so I think there's still some room for commercial properties to go up.
Anthony Wile: We've written about organic, or at least healthy, food and water recently. Is it wise to be watching for opportunities there?
Marc Faber: I suppose it's an investment theme but it's not that easy to play that theme. We've seen with a lot of health care, health-related nutrition companies, it becomes a fad and the stocks drop a lot. Water, yes. I think it's a theme but, again, it's not that easy to play it and the valuations are already relatively high.
For individual investors I recommend especially to buy Singapore and Hong Kong REITs, real estate investment trusts, if they can, but that's not obvious. Real estate in Asia, in my opinion, is still reasonably attractive – not terribly cheap but reasonably attractive.
Anthony Wile: Speaking of Asia, what's your take on China, as far as from a general economic overview?
Marc Faber: From a general overview perspective, China is a country with 1.3 billion people. There are some sectors in the economy and some regions within China that are still growing and other sectors and other regions within the economy are contracting. In general, I think that the economy overall has slowed down very meaningfully. In my opinion, if the economy grows at 4% per annum, for right now that's about the maximum.
But at the same time, the stock market performed so badly between 2006 and 2014 that stocks are relatively cheap. And as they will cut interest rates and ease further – I'm not saying this is what I would recommend but that's what they are going to do. I think stocks, which had already a 50% rally from the lows in 2014, now they will correct, maybe down 20%, 30%. But I believe a new bull market has begun.
Anthony Wile: How much further will the stock market climb?
Marc Faber: Sorry. I don't know. But I know one thing: Once it tops out it will decline a lot.
Anthony Wile: We've been referring to the Wall Street Party going on now. As long as the party continues everything's wonderful but when the party's over it will end quickly.
Marc Faber: Yes, and last year about half as many stocks went down as stocks that went up. But the index could eventually have all the stocks going down and one stock going up substantially and driving up the index. I don't think that people made a lot of money last year.
Anthony Wile: You mentioned at the outset people must diversify. We assume you'd say that's now more important than ever?
Marc Faber: Correct.
Anthony Wile: Give us your take on the Russia/Ukraine/US/NATO fiasco.
Marc Faber: On the issue about Ukraine, we had the Cuban crisis in 1962 and it's very clear. It's also very clear to European leaders that Russia will not have NATO in eastern Ukraine and that they will keep the port in Crimea because it is very important for Russia. So the Western powers better come to the negotiating table and make some kind of a deal with Russia.
The American media portrays Putin as an evil person but that's not the opinion of the typical European voter. He just defends or looks after his own self-interest and that of Russia. You cannot have the people like Paul Wolfowitz in east Ukraine.
Anthony Wile: If Europeans are seeing Putin as simply a protector of his people, do you also see that with regard to their own leadership, meaning are many Europeans beginning to demand that their own national leaders answers less to Brussels and focus more on their own nations? Is it part of an increased sense of nationalism?
Marc Faber: I don't think it's about nationalism. I think everywhere in the world, not just in Europe but also in the US, voters are increasingly skeptical about whether a "democratic" government is actually looking after their own interest or looking after the people's interest. I think increasingly people realize that government is an incredible bureaucracy and apparatus that looks after its own interest, not after your and my interest.
Anthony Wile: What will come about as a result of that changing perception, do you think? A Grexit, for instance? Germans protesting more vehemently?
Marc Faber: It's more a political issue, I think. The US and Europe, under pressure from the US and the neocons, will not let Greece leave the EU because they're afraid that if Greece leaves the EU Russia and possibly China will knock on the door of Greece and establish close relationships. It's not so much an economic issue. But Greece will never pay, that is very clear to anyone. They may continue to bail it out and push more money into their coffers so the Greeks can continue to do nothing.
The issue here is really what the West wants to do. Do they want Greece to stay in the EU? Okay, they have to pay. The Greeks are in a very strong position of negotiation because, notably, the US knows that if Greece leaves the EU there is a threat that Russia or China becomes closely tied to Greece. And there's another issue, that other countries may leave. Worst of all would be if Greece leaves the EU that the economy would recover significantly. That would be a complete loss of faith for the neo-Keynesians that advocate more and more government spending and more and more bailouts and claim that they do not matter, like Mr. Paul Krugman.
Anthony Wile: Given the poor state of the economy in the US and actual unemployment reported to be upwards of 20%, does it seem likely that a full-on war might be in the making?
Marc Faber: I think it's not likely that the US will go to war because they don't really have an army that functions well anymore. They have mercenaries. They pay their people and so forth. I think among ordinary people in the US there is very strong objection to interference into other countries' affairs. But in desperation, who knows?
Anthony Wile: You mentioned Wolfowitz … How much influence do the neocons still have in all of what's going on, in your view?
Marc Faber: I think the neocons are the equivalent of the neo-Keynesians. The neo-Keynesians bankrupted the world financially with their policies and the neocons destroyed the Middle East with their policies. Basically, they destabilized the whole Middle East.
But the problem is not so much the policy of destabilizing; the problem is the human tragedy, that people that were mostly poor have been displaced and are even poorer today than before. That, nobody talks about. They just talk about ISIS in Syria and Iraq. They talk about insurgency here and there, but they never talk about the human tragedy, and that I would like to point out to people. The interventions by the neocons, or under Obama under the influence of the neocons, have been a complete human tragedy.
But the Americans sit there and say, "America is exceptional." American exceptionalism. Human rights should be pursued by everyone else in the world but not by the US.
Anthony Wile: The US doesn't belong to the International Criminal Court or any other international body that would hold it accountable, so those people who are trying to draw attention to human rights violations don't have much of a voice.
Marc Faber: Yes, correct, but I can tell you that precisely because of this attitude and what I would call arrogance, the US has lost a lot of prestige around the world. Before, say 20 or 30 years ago, Russia was looked upon as an evil nation. China was looked upon as an evil nation. Today, that no longer exists. People look at Russia and they say, "Okay. They defend their self-interests." They look at China. China has been relatively good in terms of interfering in other people's affairs.
Anthony Wile: Most Americans don't get that message, of course.
Marc Faber: Yes, because the media in America is controlled by major organizations that have close ties to the government and the reporting in the US is like the reporting used to be in the Soviet Union under the communists, like Pravda. It's very biased. But as I said, in Europe, people have a different view.
Anthony Wile: It does seem recently that when the US government makes statements blasting Russia's "appalling human rights record," more voices – at least in feedback comments to stories on the Internet – are pointing out the irony of US "leadership" holding such a position, given torture reports and black sites and drone attacks, etc., and even the increasing domestic police state all garnering more attention.
Marc Faber: Precisely, but in the US there was an opinion survey done – 60% of the people support torture. But if another country tortures someone or tortures an American, then it's extremely evil. All I want to say is there are currently huge double standards that come out of the US.
But I think some voters are beginning to realize that and I'm rather convinced that neither Hillary Clinton nor Jeb Bush will be the next president. I think people realize that these are people coming from the establishment, especially Hillary Clinton, who has a very questionable track record both in terms of integrity and in terms of ability to run foreign policy.
Anthony Wile: Do you think a third party will be able to make a go of it, or just not those two particular candidates?
Marc Faber: I hope so, but this is one of the problems of democracy, that you have dynasties, and so I'm increasingly leaning to the question whether actually democracies function nowadays.
Anthony Wile: Indeed, it would be hard to find a functioning democracy. Can you point to any at this point?
Marc Faber: That I don't know, but everybody thinks that every dictator is evil. In Asia, we've had very fast growth in Japan, South Korea, Taiwan, Hong Kong, Singapore under non-democratic regimes. Even today in Singapore you have some kind of democracy but not a true democracy. In Hong Kong we don't have democracy; it hasn't ever been there for the last 150 years.
I don't know. I'm just saying that to sit there and say democracy is the best system in the whole world is maybe not the correct view.
Anthony Wile: On that note, worth considerably more discussion, we'll end for now. Thank you very much.
Marc Faber: Thank you.
The very last point that Mr. Faber makes in this interview is an interesting one. "To say democracy is the best system in the whole world is maybe not the correct view."
This encompasses a broad series of philosophical assumptions. What is democracy? What is the "best system"?
There are many answers, obviously, depending on one's ideological perspective. There is, for instance, a libertarian perspective that if one must have a state authority, it ought to be a king or queen.
This is because traditionally kings and queens owned property and wealth within their kingdoms and thus were subject to the economic impacts of their reign.
Alternatively, there is the idea of anarchy. Anarchy allows marketplace competition to be the master and arbitrator and perhaps the market can provide better resolutions than state.
Which brings us back to democracy. An argument can be made that democracy is not the "best" system and actually may be among the worst. This is because elected officials have no ownership of the state they are charged with controlling. As a result, the optimum solution of the ruling class tends to be one of "looting."
It is an outcome of the "tragedy of the commons." Public spaces are often "looted" – degraded and damaged because they are used by all but are owned by none.
Asian cultures may tend to be more overtly authoritarian than Western cultures, but as Mr. Faber points out, they are doing well and providing prosperity without some of the trappings of democracy.
Of course, currently we are at a high level when it comes to the business cycle and when the cycle turns or lapses, we may find that Asian economies along with Western economies will share significant pain.
What is clear is that when surveying the world's economies, a truly free-market oriented environment is hard to find. It is the fashion today to encumber society with rules and regulations.
We have noted, however, that the enthusiasm for government seems confined to the "chattering" classes and those with authority. The vast middle classes and working classes (in the US anyway) are making it clear that government is already too large and needs to be reduced.
Our perspective is that at some point governmental authoritarianism may begin to fail in ways that cannot be compensated for. There may be alternatives advanced that will be considerably more market oriented.
After the next leg of the business cycle, the pendulum may begin to swing back.
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