Marc Faber is an epic symbol in the macro world with many years of experience in finance, economics, and investing.
His analysis and extensive study give a voice of sanity in the middle of all the noise and chaos we've been experiencing these days.
At the present time we have a credit and liquidity crisis. This could cause the price of Gold to also decline.: Click here if the above video does not play https://t.co/nMVu54nhUn
— Marc Faber (@MarcFaberBlogs) May 7, 2020
I started to follow him right at the beginning of my macro journey until today, and I'm honored to interview him in the Rebel Capitalist Show.
In this interview, we talk about the downside of money printing and its consequences in our society, the Gold Standard, interest rates, purchasing power, and investing.
George: Okay, it gives me a great deal of pleasure to bring someone to The Rebel Capitalist Show that I have a tremendous amount of respect for.
He's someone that has been hugely influential on my thinking going all the way back to 2012. He is the publisher of the Gloom, Boom & Doom report at GloomBoomDoom.com.
His name is Marc Faber. Marc, thanks for being on The Rebel Capitalist show.
Marc Faber: Well, it's very kind of you to say that, and I look forward to our interview.
The downside and consequences of money printing
George: All right, let me start off with some easy questions for you.
I've listened to a couple of your most recent interviews, and I'll reflect back on those.
But, I know that you are not a big fan of money printing, nor are any of my viewers.
So can you start off by telling us what is the downside of money printing? Why is that a bad idea?
what is the downside of money printing?
Marc Faber: Well, I think it's easy to recognize that if the whole world decided to stop working and just print money, and have a money-printing machine on the beach, then nothing would get done in the world.
Do you understand?
We don't live, eat, and drink and have housing because we print banknotes.
We all have to have a job.
That job then gives us some money, and with that money, we can buy goods.
Whether these are consumer goods or capital goods, or education, or whatnot.
the money printing process does not make the world richer
But basically the money printing process does not make the world richer.
But, I admit it has a powerful illusion of wealth impact.
In other words, you understand, someone buys the S&P, and the S&P's is at 500, and then the S&P goes to 3000.
Of course, he's feeling happy because the S&P has gone up and, so forth, he feels richer.
That may be the case compared to someone who didn't own the S&P.
So, through money printing, and this has been observed obviously by early economists like Copernicus, and so forth, that when you print money, the money flow of the additional money that is being printed doesn't flow evenly into the world and boost all sectors of the economy.
It can boost some sectors, and it can retard other sectors.
money printing can lead to increase in prices
So, traditionally when the money is printed, it leads to some increase in prices somewhere in the system.
Money Printing in the 1970s and 1980s
Now, in the 70s, this led to increases in the prices of consumer goods.
But after 1980, and up to essentially now, it's led to asset price inflation.
You may ask why is that we have in this case asset price inflation, and that case we had consumer price and commodity price inflation.
Well, in economics there are many mysterious things.
Why do we have coronavirus now? We don't know. It's not an economic event.
So, there's are lots of things we don't know for sure.
breakdown of communism increases labor supply
But in general, I would say that the breakdown of communism in the world increased the supply of labor very dramatically after China began to open up and after the Russian rule fell.
These people have lower salaries than we have, and they are willing to work harder and for less money than we.
So there was a supply shock to the world on the labor front, and of course, the entrepreneurs of the Western world given that actually business had been slowing down already after the 1970s.
The rapid expansion was in the 50s, 60s, then after the 70s, it began to slow down.
Basically, cost-cutting became a very important factor and the cost-cutting occurred in shifting the production from the Western world essentially to low-cost producing countries including China, India, Vietnam, Eastern Europe, and so forth.
And, that kept wages in the Western world down.
Not only that but also regulation in the Western world made it very difficult and costly for entrepreneurs to actually have a manufacturing business.
Interest rate cycles and inflation
How important was the interest rate cycles starting in 1981 just going down to where we are today?
How important was that in that whole process?
Or the decision for people to take those additional federal reserves, or the bank notes that the federal reserve is creating, or just the reserves in the accounts of all the big banks under their umbrella and create more money and lend that into the repo market, and that flows into the stock market.
Instead of creating this inflation of consumer prices in the 70s, we have this asset inflation in 1980 to today.
Did the down cycle in interest rates have a big part to do with that?
Marc Faber: Initially.
What is interesting is that, in real terms, interest rates were negative in the 70s because interest rates were always below the rate of inflation.
It's interesting that after 1980 we had very high real interest rates, and yet the stock market went ballistic.
So, when people said, “Well, the stock market is going up because of low-interest rates,” I would say, “Well, in the 70s in real terms, they were very low and the stock market didn't go up.
In the 80s, in real terms, they were very high and the stock market went up ballistically.”
So, it all depends on what starting point you measure the economy and the stock market.
1982's stock market in the US was cheap.
It was at the same level as in 1964, or lower, actually, and in real terms, inflation-adjusted had declined by over 70%.
So, the interest rates at that time, because they were in real terms very high in the 80s, I can say that they didn't have a very negative impact on businesses.
But after the year 2000, as you know, the interest rates on the Fed fund rate were kept artificially low between 2001 and 2006.
That encouraged people to borrow money to buy homes.
So, we had this colossal housing bubble, and many people overlooked this fact.
When interest rates are very low or perceived to be very low, it encourages borrowing or leverage.
So, if we look at the world today, and we compare it to 1982, you and I, we can say in '82, the system was not perfect but the debt level as a percent of the economy was low.
There was low leverage in the system, and today we have an extremely highly leveraged economy not only in the US, but globally, also in emerging economies.
It has been discussed and documented well, we have very high leverage in China.
When the economy slows down, that makes high leverage and you know that from the junk bond market.
Whenever the economy goes into a recession, high-yield bonds or junk bonds collapse because the companies don't have the money to pay the interest.
So, if we have for instance at the present time, a slump in the airline industry, in hotels, and in tourism because companies use the coronavirus as an excuse to tell their employees, “Now, you don't travel anymore.”
So, they can save costs.
I'd say now airports are relatively safe because there are not so many people at the airports.
There are fewer people at the airports than at the football game or basketball game or in a disco.
So, you understand?
It's being used for companies to cancel events and so forth, and conferences, to cut costs.
So, the companies in the hotel industry, if you look at say, as an example, REITs, Real Estate Investment Trusts, are relatively safe investments.
But at present times the REITs index of hotels in the world has collapsed because suddenly the hotels operate amidst very high leverage.
So, when the occupancy drops from say 90% to 70%, they're not making any money anymore.
So right away, the dividends that will be paid by these hotel REITs will go down, and the airlines, as you know, even though they were full for the last two years, the earnings haven't gone up a lot because there was a lot of discounting.
And again, companies tell their employees, “You fly for three hours or less,” or four hours or less, “You fly economy.
You don't fly business class.”
So again, so a lot of cost-cutting.
In my view, and this is well documented, the corporate sector in America is highly leveraged.
Problems In The Consumer Base
The household sector as a percent of income is not that high because they measure the interest payments of the household sector, but we have …
I didn't realize until I saw the figures and charts, on credit cards, you have record interest rates. This shows the problem of money printing.
The rich people, or affluent people, like you and I, we use our credit cards for convenience.
But poor people, borrow money on credit cards.
In an emergency, say you have a family, two children, one child has an accident.
You suddenly need money for a few months, you can't borrow from anybody else.
Nobody else will lend you the money, so you borrow on your credit card.
George: Right. So, do you think those high credit card interest rates are a result of the retail banking sector really having a hard time making money because of the flat yield curve, or do you think it's a result of more people defaulting on those credit cards?
Marc Faber: Both.
George: You think it's both?
Marc Faber: Default rates are up, but not dramatically.
But look, I always say, a bank will always find ways to make money and screw people one way or the other.
Marc Faber: Warren Buffett once said, “I like to buy businesses that even an idiot can run because sooner or later, you'll have a management team that is an idiot.”
A bank is kind of a business like that, and when they really fail, the government comes in and bails them out.
Well, I think it may not happen again, especially if say, Bernie Sanders is elected.
He will just nationalize the banks if they have problems.
Money and purchasing power
George: Yeah, exactly.
I want to go back to something you said earlier because I think it's extremely important.
I talk about this all the time in my videos.
It's really weird to me that people associate currency with the ability to consume, instead of associating that with production and how much do I produce.
And, as a result of that … I know you touched on this on some earlier podcasts that I listened to.
Or, a recent podcast I've listened to, where if the person can focus exclusively on how much they can produce, working harder, and then look at the assets as icing on the cake, that's a much better way to look at building wealth than where most people today look at it.
They don't really look at how much more they can produce or how much more value they can provide.
They just look at how they can get rich on increasing asset prices.
Can you expand on that a little bit further because I think that's just really, really crucial and it's really weird, how our society has got this perverse way of looking at increasing their consumption levels, or their ability to consume?
Money printing leads to negative social consequences
Marc Faber: Again, the printing of money has not only the disadvantages of creating inequalities in the system, or widening inequalities, because it doesn't flow to all people in the same way.
But it also has very negative social consequences.
A hedge fund or a fund manager basically doesn't create wealth.
You could essentially say, “Yes, he does because he buys a company and that company has the money, and they can create products and so forth.”
Yes, to some extent I accept that view, but in most cases, it's like speculation from the private equity guys.
It led mostly to the destruction of businesses.
We can argue it's good that some businesses get destroyed because that's the way capitalism works.
Some businesses have to go out of business and clever operators like Amazon.com, they come in and they fill the gap and they do well.
And, the other guys who have the brick-and-mortar shops in the street, they go out of business because they didn't adapt.
I accept that to some extent. Okay?
But, it has led to the belief and to a society who essentially speculates.
What you said is true, lots of people, they think, “I'll buy a piece of land. I will become rich.”
Well, real estate does not always go up, but there are many cases where real estate has gone down or has been flat for many years.
Equally, not every stock goes up. Some go up and some go down.
I'd say because the money that was printed didn't really flow into so-called Main Street, it led to incredible speculation, and as you know, because of this asset inflation we have, young people today …
And, we have a lot of statistics.
People at 35 today, inflation-adjusted, they earn less than I earned at 35.
And, they have less money than I had at 35.
All my life, I worked.
It's only in the last 10 to 15 years that I started to pay attention to investments for myself.
Before that, I just put money in the bank and my business was very lucrative.
So, I never had to live on investments and on high returns.
The high returns came from my work.
But nowadays, the young guys at 35, they can't buy a house unless they speculate and unless, like Donald Trump, have a rich daddy.
So, the rich daddy gave him some money to buy some real estate, and probably the best for Donald Trump would have been to do nothing in his life.
Just stay in the real estate zone. He would have been much, much richer.
He's a horrible businessman.
I'm not talking here politics, but as a businessman, he's horrible.
why it's harder to make ends meet today
Marc Faber: A lot of young people then speculate, and the volume recently on online brokers and brokerage firms like Robinhood has more than doubled because everybody speculated.
Nobody can make ends meet.
When I was starting to work in 1970 on Wall Street, I could put my money on deposit at 7% interest per annum.
I could buy stocks with dividend deals of 6%. And then, interest rates went up in the 70s, so you didn't have to be a genius …
At 6% per annum, you double your money every 12 years.
George: Yeah, compounded, that's incredible.
As someone who has been in financial markets for so long…
Marc Faber: Don't remind me.
George: I apologize.
Marc Faber: You make me feel old.
The Gold Standard
George: No, no, no. It's to your credit.
Even me, I'm 47, but I've only been paying attention to this stuff since 2012, and we've got so much more history in inflation, the Gold Standard.
How was it when the United States was on the Gold Standard prior to 1971?
I mean, you were there. You experienced it firsthand.
How was the attitude different, number one, with society in relation to investing?
And then also, did that really restrict the Federal Reserve's ability to create money or the banking system to create all this money, and therefore create all of this inflation?
Which, I think is the main driver of why there's such wealth inequality today.
I think if we would have had deflation that we had in the 1800s, as an example, or prices went down by 50% from 1800 all the way to 1900, that the level of inequality would be a fraction of what it is today.
But, I'll let you expand on that.
Marc Faber: Yes, I think you're right.
money printing creates inequalities which can lead to socialism
I think that money printing creates a lot of inequalities and it's an avenue to socialism.
But, I would say I mentioned briefly the social consequences of monetary inflation.
The Fed will say it's none of our business, it's a political matter.
But since everything is connected, economics and social sciences and economic and the politics, I think it has something to do with it.
The old days
If you ask me, I was born in '46 and this was just after the war, and I spent a lot of time with my grandparents because for whatever reason they actually liked me.
That didn't happen a lot in my life, but they liked me.
So, I could see a little bit of the lifestyle they had.
They never had a credit card.
They never borrowed money. I think when they bought their house, they probably borrowed some money but again, they didn't buy a house for the price appreciation.
They bought the house because of their needs, to live somewhere.
I don't think my grandmother … She had some shares of a cable car company in the mountains because she lived there and they had the hotel, and my grandfather had actually built this cable car company.
And, my uncle actually built the Titlis air cable company.
As far as I know, the only cable car company in the world with a gondola that carries about 120 people, can rotate 360 degrees while it goes up to the top of the mountain, to the glacier.
So the tourists can watch all around the area in that gondola.
Anyway, my mother's family is from the mountains and they were pioneers of the winter sport in Switzerland.
So, they never had any shares. They just had shares in the local economy.
But, it would have never occurred to them to speculate in the market.
My parents, they were a little bit more aggressive. They owned some shares, but very few.
I mean, most of the money was on deposit and in government bonds.
Again, they didn't really buy for huge capital gains and they didn't speculate.
They worked very hard. If you ask me how life was at the time, then I'd say one thing.
The golden years of America were the 50s and 60s.
And, as a result of these golden years, the currency also became grossly overvalued.
when they went off the Gold Standard in 1971
So, when they went off the Gold Standard in 1971, the dollar really adjusted on the downside, especially the German mark and the Swiss franc and so forth.
But life at the time was very different in the sense that we didn't have …
Actually, it's very funny because Milton Friedman has written about this many times.
He said that social security has actually increased poverty in the US.
It hasn't diminished poverty. I can see that to some extent, that the security actually increased poverty rather than decreased it.
George: Right, do you think there was a dramatic difference in the attitudes or the way people thought about investing when we were on the Gold Standard compared to when we were off the Gold Standard?
Marc Faber: But, I would not necessarily say that it's because of the Gold Standard.
You have to understand one thing, which I think is very important.
There was never a pure Gold Standard
There was never, ever a pure Gold Standard, except when people traded only with gold coins or silver coins, like at the time of Rome.
But even at the time of Rome, they borrowed money.
There was a mortgage market, so against your property, you could borrow money.
But in the 19th century when they talk about the Gold Standard, yes, the banks held gold reserves, but they also took deposits and lent out money.
So, they had a paper money system.
But, it was not as extreme as it is today and I would say that the one thing that has really changed …
I mean, I don't think that today's world is much more dishonest than it was before, but in some ways, it is more dishonest.
I think that the US government, the federal government, started out in 1776 with a lot of good intentions.
I really believe that they wanted to create a fair society and that people, they believed that everyone in the US would be welcome and that people should be free.
And also, free from hunger, so that they would have opportunities.
You understand? I really believe that this was the intention.
A dramatic change in society
But, if I look today, and that began to change, I think maybe 50, 60 years ago, it began to change dramatically.
I think today's politicians, they have no clue what the original thought of the US was.
I believe that they confuse freedom with the absence of responsibility. You understand?
You want to be free in your life. You're an entrepreneur. Well sorry, you had to work hard.
You had the responsibility to make a profit, to look after your employees, your family, and so forth, and to make a positive contribution.
Otherwise, you couldn't have this program today.
So, I think that today's politicians, their aim is actually to make money out of politics.
There's big money in politics.
Look, you take an honest country.
Then, you look at government expenditure, say, in an honest economy.
There are no 100% honest economies, but there are shades.
Norway, Sweden, Finland, Denmark, Switzerland, and so forth, they're relatively clean. I say relatively.
Then you go to the other extreme from the Democratic Republic of the Congo to Libya, to Zimbabwe, South Africa, and so forth.
There, most of the budget is stolen. Now, let's assume an honest country steals 5% of its budget. In other words, government expenditures.
Well, let's say the US is relatively honest and only steals 5%.
We're still talking about the budget in the US. In other words, federal government spending of $4 trillion dollars.
Marc Faber: You know what 5% of $4 trillion dollars is?
It's $200 billion dollars.
It's a lot of money for the federal government to steal, and that is the assumption that they're honest.
I would rather say in Washington they steal 20% of the $4 trillion, so we're talking about close to a trillion dollars that goes somewhere.
George: Yeah, I couldn't agree more, and I dislike all politicians.
The right, the left, it really doesn't matter.
Everyone who watches this channel knows that. I always say that I dislike all politicians equally in the United States.
But, why do you think that the Scandinavian countries, you brought them up, they collect a lot of money in tax revenue and most people don't understand, that's mostly from the middle class?
The left likes to get fixated on their high tax rates for let's call them the rich, but they don't understand that the majority of that money that they're spending for all those social welfare programs, that's coming straight from the middle class.
Marc Faber: The rich don't ever pay tax.
George: Okay, yeah.
The wealth tax
Let's actually go off on that, because that's one of the questions that I had for you.
Taking it back to the United States and this introduction, or potential introduction to the wealth tax, I always get feedback and people trying to refute that saying, “Well, the rich will never leave the United States.
We can go ahead and put on a 50% wealth tax or whatever, it is over $50 million, and we all know that that will go down.”
But, they always make this claim that they'll never leave because there's no place like the United States and they're not going to go to a third world country.
But my point is you've known a lot of really rich people.
You're very well-to-do yourself. Are they wrong or are they right to assume that tax rates, or the wealth tax, wouldn't motivate a rich person to move somewhere else?
Marc Faber: Wealth is relative. You're never rich enough.
What I want to say is I think to some extent this may be true, but you understand in America, even at the time when they had the very high marginal tax rates on the wealthy, they didn't pay a lot of tax.
George: Yeah, the tax revenues compared to GDP was the same. I always use these charts.
Marc Faber: Absolutely.
In my view, the wealthy, they don't have to move somewhere else.
Every legislation in the US goes through Congress.
By the time it's gone through all the various lobbies and support, it's watered down and what you will end with is the higher middle class, like say a doctor.
He can not cheat much on taxation because he has to bill the insurance companies and so forth, and certainly, he has employees. So, his income is very visible.
Capital Gains tax
The very wealthy people have a lot of income that is not so highly visible and they have a lot of capital gains.
And, to tax capital gains is a very problematic issue, and I want to tell you why.
Say your parents, let's assume they bought a farm 100 years ago, or 80 years ago.
The farm at that time was very cheap, or low in price.
They held it and now the land is worth a lot.
But, as it happens your parents have passed away and they have three children. You understand?
The three children, they happen to like to keep the land.
But, under capital gains tax principle, A, your parents may not have been able to keep the land, and B, the children that will inherit it, they will have to break up the land.
Otherwise, they can't pay the tax.
And, the wealth tax has some problems, and the Thai government is going to find out very soon.
George: Oh, are they trying it there as well? I didn't realize that.
Marc Faber: On real estate, yes.
But listen, it shows again what you just said about governments.
The economy in Thailand, at least for me, visibly because I'm not an economist that only reads statistics and books, and behind closed doors in a central bank building, but actually I observe people on the street.
I observe the traffic, I observe the hotel occupancies and especially, I observe how many people are in nightclubs.
Anyway, the economy here began to slow down.
At the present time, I can assure you it's a slump worse than during the great financial crisis.
George: In Thailand?
Marc Faber: Yes, the economy is extremely weak.
The whole of Asia is weak, but this economy here, I pass Thai restaurants, they have days where they don't have one single guest.
George: Is that because of the coronavirus or something else?
Marc Faber: There are many reasons, but the coronavirus is one problem because the Thai economy, about 20% of GDP is tourism.
Marc Faber: And of the tourists, 28% come from China.
The Chinese are absent. They're gone.
They're not coming at the moment.
And, of course, as you know, money printing that leads to stupid investments, the hotel industry in Thailand expanded dramatically in the last five years, and the tourist industry, they bought buses for the Chinese because the Chinese are so numerous.
You have to ferry them around in huge buses, not in small cars or mini-buses.
All these investments are on credit.
All I want to say, in my opinion, the economy is very bad and the stock market this year is down 15% after a bad year last year.
Tells you a little bit something about the economy.
Anyway, in its wisdom, the government now is introducing taxes on land.
Not huge taxes, but say enough taxes to be meaningful for people who don't have other incomes.
But you can avoid these taxes by making your land agricultural land.
So, the government gives you trees to plant on the land or you can plant bananas and other fruits.
Now, everybody will plant something, you understand?
If everybody plants something, what will it do to farm prices? They will collapse.
You have a surplus of fruits, of vegetables already.
And, the tax increase at this time of the economic cycle is, of course, stupid because a lot of people will be struggling to pay that tax.
I tell you, all these taxes, they lead to endless cheating.
Marc Faber: In Switzerland, we have many people, and the only ones who really pay the tax are where you have visible wealth.
Say you have a house, you have to pay taxes on that house.
It's a funny way to calculate.
They will say to you, “If you didn't live in the house and you would let it out,” you would get say $3000 or $5000.
So, they calculate this as your income by living in the house, and on that, you have to pay tax.
George: So, they calculate the tax on the house as though you rented it out?
Marc Faber: The rents, they calculate as if you would rent the house and then they assume that you would earn this in addition to your income, so you pay tax on essentially your own home.
And, you pay a wealth tax. And, the wealth tax.
George: Yeah, it's just the middle class and the upper-middle class that ends up paying the taxes, to your point, and the rich have ways because they have so many resources at their disposal to get around it.
Marc Faber: They have so many lawyers.
Marc Faber: Lawyers.
George: Right. So, since you're right in the middle of Asia, and we talked about the coronavirus …
That's really a hot topic that's on everyone's mind for obvious reasons …
How do you see that playing out in the global economy and then in the US economy as well?
the global economy
Marc Faber: Well, I think that we don't know yet how severe it will be but what we know is that it's unlikely that it came from bats in a market in Wuhan, let's say.
It's not very likely. You know, some people still believe in Father Christmas and believe that 9/11 was carried out by a man in a cave in Afghanistan or Pakistan.
So, let these people believe that.
But, in general, I would say that it's unlikely that it just came from some bats in Wuhan.
It's highly contagious.
If I send you an envelope today, some mail, and I have the virus and you receive the envelope and you open it, you might contract the virus.
George: Yeah, what are the economic impacts on that in the world economy?
Obviously, the health concerns are very legitimate but even more so than the health concerns, I think the economic impact could just be really huge.
Marc Faber: The economic impacts, if it's not over tomorrow or next week, is going to be … And, I hate to say that.
It's going to be devastating. Believe me.
I mean, say you're a cruise ship operator and you're the consumer, would you now go on a cruise ship and be exposed to the risk of being quarantined and maybe running out of beer and whiskey and drinks?
That is the worst part.
In an extreme of quarantine, you're not even allowed to leave your room.
George: Yeah, so how does that play into the US economy that's already so fragile?
Marc Faber: Can you imagine staying with your wife for two weeks or four weeks in the same room?
George: Yeah, that's the worst part.
Marc Faber: That's the worst part. Also for the wife, to be fair. We have to be politically correct here.
George: Yeah, that's right.
So that really could have an impact, especially on the US economy that, to your point, is so fragile with all these asset bubbles.
It's not the size of the pin, it's the size of the bubble.
I just see that potentially being the black swan or the tail risk that could really bring down the US markets because they're so levered up.
Marc Faber: Yes, I agree with you.
I still maintain we don't know for sure, but if it's so contagious, as I just pointed out, and it spreads …
Something is important in today's economy, a lot of is hot air.
Do you understand? This whole social media stuff is basically hot air.
Going back to the people who want to make money without work, the social media crowd is a phenomenon of most people who want to be famous without delivering anything.
They have nothing but they feel entitled to be as famous as Taylor Swift or whoever that might be. Or, the Kardashians.
But, you understand some people have something to add to the equation but a lot of this social media is just hot air.
And so, the psyche of people is such that even if the coronavirus right now, the likelihood that you would die at your age from catching it is not very high.
But you understand if you catch it, then you have to go into quarantine in a hospital, so it's a horrible experience.
And in the quarantine, the likelihood of dying increases because you're exposed to other people.
So, I would say the chances of you having a car accident is much higher than you catching the coronavirus, but people are not used to this sudden disturbance, so the psychological impact is huge.
George: Yeah, it's the psychological impact that leads to the economic impact.
Marc Faber: Yes, and I said before the corporations use this as an excuse, “No more conferences, no more traveling.”
I can tell you in the world, the conference business, the travel business, the hotel industry, in Thailand and Hong Kong, restaurants, hotels, airlines are the largest employer.
This is a big, big employer in the world.
George: Right, right.
Marc, I want to be cognizant of your time and it's just been a great interview so far.
But, I'd really be angry with myself if I didn't ask you a more investment type of question.
How can we make money?
And, I know that you just got an awesome world view.
So I'd like to ask you this question, right now if you had …
I'm going to say … a five year and 10-year time horizon, if you could pick one country to go long, which country would that be?
Marc Faber: Well, I think that right now I would actually wait to make major investments.
Because I think we had a bull market secularly since 1981, but more so say from a cyclical point of view since 2009.
Actually, in a few days, we're 11th year in the so-called bull market.
Maybe it's over now, but anyway, 11 years in the economic expansion will be in June.
So, we're in a very old bull market and now the market dropped for some stocks.
Tesla from the peak was down 33%.
And, despite all the BS that the mainstream media will tell you, on Friday, the market at its low was no higher than it had been in January 2018 when the S&P reached 2840.
In September of 2018, the S&P reached 2940.
So basically at the low last Friday, we're no higher than two years ago.
But, we are of course elevated in other respects, especially in bonds.
The bond market has been rallying a lot.
Over the last 12 months, you did better in US Treasuries, in long-dated treasuries, than in stocks.
And, you have the farmland related stocks that are in the sky, like in 1973.
At the time, we had stocks like Kodak, Polaroid, Sears, JC Penney, Levitz Furniture, Kresge which became Kmart, and of course they were all in the sky in zeroes.
But, we have a heavy concentration of stocks.
When they go, who knows what will happen.
But I think the first decline we had is actually not a buying opportunity.
I think we can go quite a bit lower.
George: But, do you think there's a buying opportunity right now in any other countries, like emerging markets?
Marc Faber: In emerging markets, the valuations have come down but I'm sorry to say that the economic outlook under certain conditions …
If the coronavirus is really very contagious, it could really hit global trade.
I'd like to point out my views that it's not the coronavirus that will cause the next recession, but it could be the catalyst that suddenly people think differently and act differently.
And suddenly they will say, “Well, I'm not going to buy anything from China because it could be infected with the coronavirus,” and so forth and so on.
So, you understand the psychology of people may change a lot.
But, it can be a catalyst, and I just wrote a book about the big changes in the distribution of wealth.
Usually only happens through wars and revolutions and plagues.
Otherwise, wealthy people will never voluntarily give up their wealth.
You have to hang them up or put them in the guillotine, like in France, that you can take their wealth away. Otherwise, they will resist.
George: Right, but a lot of people argue that's why we should have a wealth tax.
And, I can't imagine … Obviously, you're not in favor of that so, what is the solution?
Is it a more free market, less government?
I mean, it seems that all the problems that people on the left point out in the United States could be solved with a smaller government.
If the government just didn't have as much power, there'd be less crony capitalism.
You can go on down the list, but what's the solution to that wealth discrepancy?
The solution to that wealth inequality
Marc Faber: Well, I have a very easy solution. An 80% bear market in stocks could solve that.
George: Yeah, exactly. Right.
Marc Faber: That is the solution.
But, you're afraid that everybody will say, “Well, it will kill people and the Main Street.”
I'm not so sure about that. I will give you an example.
We had the great financial crisis in Asia, and it really killed the markets.
I mean, the stock markets went down a lot.
But, in an economy like Shanghai … I have a stock brokerage account in a local brokerage firm but the head office is in Bangkok.
This is a branch. And, I think I'm one of their only customers. Seriously.
Marc Faber: There are a few Chinese that are probably customers, but none of my expatriate friends has a stock portfolio. None.
George: Right. Well, that goes back to what we were saying at the beginning of the interview.
So, right now the bottom line is we just sit on the sidelines? That would be your suggestion.
See how this plays out and if there are some cheap stocks in any country, the United States or outside of the United States, then maybe take a look at that when you can get a handle on where the coronavirus is going and if it's going to be a big impact.
From a psychological standpoint, and then, of course, an economic standpoint as well.
Marc Faber: I look at hotel stocks, say in Hong Kong, and casino stocks in Macau but they're nowhere near as low as in 2009.
Nowhere near as low.
By the way, Las Vegas Sands in, I think 2006, 2007, the stock was at say 130.
Don't quote me. I don't remember exactly. I could check, but it's not relevant.
Then, the stock went down to one and a half during the recession.
There were question marks about will there be enough money to pay for the casino they were building in Singapore and so forth.
Then, the stock after 2009 rallied and it went to $150, something like this.
But, I think at the present time, the casino stocks in Macau, they're not yet good enough value.
Because if the virus is over tomorrow, then it's okay.
But if the virus continues, and the casinos are closed for say a year, I tell you most would have financial problems.
A year's closure. Companies don't have the reserves for one year.
George: Yeah, right. But, they sell the debt.
Marc Faber: Yes. This is another point.
The government bonds have rallied recently strongly, but I can tell you bonds of hotel companies, and casinos, and airports, and hotels, and so forth, and oil companies.
The bonds of these fracking companies, they have been slaughtered.
I would say even without a virus, just let's look at the market.
Is the market cheap or not?
Marc Faber: It isn't. By no valuation measures.
It's cheap. The dollar is relatively high.
Interest rates, maybe the Feds can force them into negative territory.
In Europe and in Japan, negative interest rates have been a disaster.
George: Yeah, and continue to be a disaster as well for the economy, the banking system.
Advice for someone with not a lot of money to invest
I want to try and end on a positive note, Marc.
I remember I listened to a podcast that you did the other day, and I found it fascinating that one of the suggestions that you made, one thing that is cheap right now is you said real estate in countries in Europe …
I'm not sure if this applies to other areas in the world outside of the urban areas that are extremely cheap right now.
And you said if you were young, or a suggestion that you would give to someone who didn't have a lot of capital or a lot of money set aside for investing, maybe consider something like that where you could get it at a discount.
You said there are some places that were even giving properties aways, and then figure out maybe an Airbnb or a way to change the use case for that property to actually generate cashflow.
And for someone with not a lot of money to invest, I just think that's a really neat idea.
Before we go, could you expand on that briefly?
Marc Faber: Yes. First of all, I think that the trend that began a while ago …
We have statistics about that, and these statistics are not distorted by government figures, is that more and more people work from their homes.
You understand we are in an economy where you have more and more people, they are part-time employees in a company or they get a job from a company, but the company doesn't even want to have them in their offices.
They say, “Three months, come with the results of what we told you to do.” So, a lot of people work from their homes.
I have an office here, but it's next door to my house and I stay in Chiang Mai.
If I were 20 years old and I was in the financial field, then probably I wouldn't be here.
I'd be hustling around Hong Kong or Singapore, or New York, or London in a financial center. At my stage in life, I can do that because of the internet connections and communication connections.
So, I believe a trend is on the way where companies realize that it's incredibly unproductive for someone to take a train in the morning, travel one and a half hours to the office, work, and then travel one and a half hours back.
So, the companies will tell their employees, “Look, come in for meetings but the rest of the time, you're free to work from home.
But, you have to do your job and you have to report to us so we can see what the results are.”
So, I think that this trend is on the way.
Now, the coronavirus has already led to some companies telling their employees, “Stay at home.”
I think the companies will make good experiences with these stay-at-home policies, and so it's a trend that will take off.
You could live, say, at practically no cost in the countryside somewhere in Portugal, Spain, Italy, Sicily as a part of Italy, of course, and also in Germany in the countryside, and even in England in the countryside.
You could spend very little on your housing costs and have a nice place, and if you have halfway some brains, you can actually fix up the place yourself.
You don't need to be a genius engineer.
Marc Faber: But nowadays, there's so many courses that teach you on YouTube how to do something, so even someone not that talented can maybe learn.
The local people, they can also help you a little bit at a relatively low cost because you could pay them under the table.
Anyway, all I want to say is I think that considering the very high level of costs of city centers …
You know how much the rent is in Madison Avenue in New York?
Around the 50th, 60th Street, and so forth?
The same in Hong Kong in the main shopping streets. And, more and more commerce occurs through e-trade, eCommerce.
This is a big thing for luxury goods companies.
They have whole teams that analyze how to drive eCommerce sales.
In other words, no longer having …
They have storefronts for the advertising, but maybe they could advertise without all the costs of the entire store.
Marc Faber: Because I'm old-fashioned, I still go to a shop to buy things where I only buy things, the beer supply that I need and the cigarettes and the whiskey that my staff buys for me.
But when I need to buy shoes, then I go maybe once every two years to buy a pair.
George: Right, right. You got to keep the important stuff in case you get quarantined there in Chiang Mai.
Marc Faber: It's also like the hotel industry. Airbnb is a huge negative for hotels. Incredibly negative.
George: Yeah, but to your point, if you could get one of these cheap properties out in the countryside in one of these countries that are almost giving them away, you could turn it into an Airbnb, live there so you have no housing costs.
I mean, you could really get creative with it, and I didn't know that in Europe in the countryside, the housing was so cheap.
Marc Faber: I'll tell you why, because also in Switzerland, it's hard to believe, but in Switzerland, we have mountain villages, they died out.
The young people have no employment, so they go to the cities and work in the cities.
And, the parents when they die, nobody lives there.
So, we have villages where actually the government will give you a house.
But, you have to fix it up. You understand?
It's not entirely free, but considering how …
If you live in New York, you should know how expensive it is to live in a decent place.
Whether you own the property or you rent, it's expensive because if you rent, the rent is high and if you buy, the maintenance cost is very high.
George: Yeah, well I'm in Medellin right now. I do a lot of real estate investing in Colombia, and I've done it in the United States.
so I totally understand what you're talking about on a price-per-square meter or price-per-square-foot or the rentals.
All right, Marc.
Real Estate Medellin
Marc Faber: You have property in Medellin?
George: Yeah, I do a lot.
I'm in Medellin right now, and I do a lot of real estate investing here.
Exactly what you're talking about.
I go buy old apartments and I fix them up and either keep them in a rental portfolio or sell them.
Marc Faber: People tell me it's a really nice place.
George: It's gorgeous. Absolutely gorgeous.
The weather's great, the people are great, the food's great.
Extremely low cost of living and you've got a lot of the digital nomads here, as well, to your earlier point that they don't need to be in an office.
They don't need to be tied to a brick-and-mortar location.
Marc, for those of the viewers who want to find out more about what you do, can you tell us where to find you?
We talked about the website before.
For any of those who are interested in looking at a newsletter, I would highly suggest looking at what Marc has to offer.
Just some great, great stuff. But, is there any other place where people can find out more about you?
Marc Faber: Well, I think this is the essence, the website and they can Google my name.
Usually, some interviews like yours will be put up.
But, thank you very much for trying to advertise my services. Very kind of you.
George: Thank you, Marc.
Again, it was just really an honor and I want to thank you for just putting yourself out there because I've learned so much from what you do and just your research and all the videos that I've seen of yours on YouTube, so it was really an honor.
Marc Faber: Thanks a lot. Bye-bye.