Dr. Marc Faber joins FRA Co-founder Gordon T. Long in an exciting
discussion of monetary malpractice, negative interest rates, the influence of
current geopolitical risk and much more. 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 PhD in Economics.
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 and fund manager.
Dr Faber publishes a widely read monthly investment newsletter "The
Gloom Boom & Doom Report" report which highlights unusual investment
opportunities, and is the author of several books including "Tomorrow's
Gold - Asia's Age of Discovery" which was first published in 2002
and highlights future investment opportunities around the world. "Tomorrow's
Gold" was for several weeks on Amazon's best seller list and is
being translated into Japanese, Chinese, Korean, Thai and German. Dr. Faber
is also a regular contributor to several leading financial publications
around the world. 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 and is a member of the Board of Directors
of numerous companies.
Japanese Negative Interest Rates and Their Global Implications
"It's an experiment by few mad professors that occupy senior
positions in central banks."
Over the last 5000 years of recorded human history, interest rates have
never been as low as they are now. The time value of money is the natural
state. It is the markets way of pricing today's money and the future's money.
The higher the uncertainty of future money is, the higher the rate of
interest will be. What central banks are doing at the present is
incomprehensible to me, unless it means an expropriation of money.
The central banks in their madness believe this will result in economic
growth. But in reality it will force people to become insecure. For example
if you received 6% on your money, and then rates become zero and in this case
become negative which in other words you're being penalized for your deposit.
Does that rate make you save more or spend more? One thing I will never
understand is despite us having democracies, somewhere, somehow, the system
has given so much power to a bunch of well understood, unelected academics
and most of them have never worked for the private sector for a day. The Fed,
Bank of Japan, ECB are all like-minded people; they all believe money
printing boosts economic activity and tight money is negative.
"They will bankrupt the world."
We do not know how badly it will end, but an interesting thing to note is
if you look at the 2008 financial crisis, which sector got the most bailout
money? It was the banks and the fund managers. Then you look at the
performance of their stocks, it is a disaster. Bailout money and money
printing doesn't help at all. In fact it has made matters worse for the
average American. I side with Americans who support Bernie Sanders because he
is expressing the views of ordinary people that the Wall Street guys and the
banking lunatics have essentially cheated the people.
"In every instance where they have negative interest rates, the
exact opposite of the objective occurs."
This view of central banks to distort the free market and capitalist
system is a view of the paternalist; some people that think they know better.
They think they can steer the economy like how you would drive a car.
Fed Raising Rates
"As a working man it is hard to believe the world has handed so
much power to a bunch of ignorant and arrogant people."
Firstly Janet Yellen was the president of the San Francisco Federal
Reserve which is in charge of California, Arizona, Nevada and another state.
In her district we had the biggest real estate bubbles ever. Now she is the
Fed chairman and slashed interest rates. We have had eight years of zero
interest rates, and now she increases it by a quarter of a percent which is
meaningless. She should have increased rates when there was a strong recovery
in 2010 and 2011 but she waited. She waited right until the world is entering
a very deep recession. She will go down and have a front portrait in a museum
as a central bank failure.
Implications of Monetary Malpractice
"There are reasons to believe that central banks will go
bust."
Systemically I think they have allowed the debt level to expand, particularly
they have allowed government credit to expand as a percentage of the economy.
You have to understand that when you try to suppress individual risks in a
system, eventually you end up with systemic risk. We will eventually have a
huge crisis and investor will not know how to deal with it.
People like Bernie Sanders are not blaming the Fed, they are blaming Wall
Street. In other words they are blaming rich people for the hardship or
ordinary people. The Fed essentially threw money at Wall Street and naturally
they kept it for themselves. Yes, there is a trickle-down effect which makes
them give their waiter a slightly larger tip; it is insignificant.
Issues of Current Geopolitical Risk
"Everything the US touched in the Middle East and Central Asia, from
Afghanistan to Iraq, Syria, Egypt and Lebanon, it all turned into a complete
disaster."
The Neocons had this brilliant idea to start making trouble in Ukraine,
not understanding it is Russian territory and historically until the early
20th century Ukraine was part of Russia. Also not understanding that Crimea
is of huge strategic importance to Russia, just like what California is to
the US. Russia will never give up Crimea, I can promise you that. This is
because it is a warm water port and they need it to have the access to the
Mediterranean, without it they are at the mercy of America.
The Europeans are equally as incompetent. Angela Merkel just follows the
US without understanding she is hurting the business interest of Germany.
Russia and Germany were historically, culturally and politically very close.
The interventions are very poorly thought out.
In the case of China, it is the second largest economy in the world with a
population of 1.3 billion people. It is a highly advanced economy, especially
in defense technology. A pivot to Asia by the US is seen by the Chinese as an
aggression. It is a threat to the sovereignty and security of China which has
created another set of geopolitical tensions.
Fear of a Collapsing Petrodollar
Under Mr. Greenspan the central bank enjoyed a lot of prestige. He had
done better than his predecessors; his only major mistake was deliberately
creating the NASDAQ bubble.
"However, Bernanke and Yellen are complete chaos. I don't actually
believe that they make the decisions; they are told by someone what they
should do."
It is difficult to tell what people think but if you look into the
Japanese negative interest rates, the intention was to weaken the Yen. Not
that the weak currency helps anyone, but by slashing interest rates and
having them below zero 10yr Japanese bond will cause you to lose money unless
the Yen appreciates. The idea was to have negative interest rates cause the
Yen weaken but it actually strengthened.
Investment Opportunities in Asia
The area of Indochina is a boom-town. Not Thailand but Cambodia exports
are rising at about 20%/annum. Vietnam has huge inflow of foreign direct
investment, partly because the Taiwanese, Koreans and Japanese can invest in
Vietnam and produce goods there.
There are a lot of investments coming from China and South East Asia. The
US is afraid of China gaining too much influence in that part of the world so
they waste money there by trying to displace the Chinese. The Chinese will go
to Cambodian government and say they are going to make a road or a bridge and
in 6 months it will be built. Whereas the US will send a team of useless
characters to go check out the scenery then come back in 3 months to check
out more scenery and 5 years later nothing will have been done. All the while
in this time the Chinese will have built roads, bridges, tunnels and all
kinds of infrastructure.
Advice for Investors
"My advice is to have a diversified portfolio. You have to have
some equities, some bonds, real estate and precious metals."
In my view it will not end well. This era of artificially low and market
distorting interest rate structure will end terribly. There is a popular
notion now of 'sell everything' but this is a flawed idea. You sell
everything and you have all this money now, what will you do? Deposit it in
banks? What happens when the bank goes bankrupt? In practice it is
very dangerous to have all your money with one bank.
Abstract written by Karan Singh
