Marc Faber on 21st Century Investing, Why It's Too Late for the
Dollar and Why Emerging Markets Look Good
by Anthony Wile
The Daily Bell
by Anthony Wile: China
Tries to Start a War?
Bell is pleased to present an exclusive interview with Dr. Marc
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.
Thank you for sitting down with us today. Please give us some background.
Where were you born? Where did you grow up?
I grew up in Geneva and Zurich.
You obtained, at the age of 24, a Ph.D. degree in Economics, magna
cum laude. What drove you to accomplish such a feat?
Well, I passed all my classes not because I was particularly bright
but because you have to study what is most important to the work
you are interested in doing. I also studied economics, and in those
days you didn't have to study more than four years, so I was able
to finish relatively early.
For a while, you worked for the famous White Weld & Company
Limited that caused the paper crunch.
I started with White Weld in 1970 and then in 1978 they were taken
over by Merrill Lynch and then I worked for Drexel Burnham.
You worked in New York City, Zürich and Hong Kong. What was
In the early 70s, New York was the leading financial center. When
I moved to Asia in 1973, Asia was still very poor. Countries like
Taiwan, South Korea and Singapore had very poor infrastructure and
were still essentially run by "Dictators.". I felt, based
on the experience and the rise of Japan in the 50s and 60s, that
other countries in Asia were going to grow very rapidly, so I stayed
on, mostly in Hong Kong and throughout Asia.
You moved to Hong Kong in 1973, and became a managing director at
Drexel Burnham Lambert Ltd. Hong Kong. You were there throughout.
Did Drexel get a bad rap? What about Mike Milken? What do you think
of Drexel these days?
Well I think Mike Milken was a financial genius. I have great admiration
for him and his ability to work under enormous pressure. At the
end, he had lawsuits, he was defending himself; Drexel Burnham had
lawsuits and he was still trading bonds every day. He had unusual
abilities to function under very heavy pressure but, obviously,
the firm and his department did a few things that were not entirely
above the board. I wouldn't think, when looking at what has happened
in the last few years, he deserved to go to jail. There are many
people that committed far larger financial fraud, or at least contributed
to irregularities, that have never gone to jail in the last few
years or up to this day. The penalty was disproportionate.
In 1990 you set up your own business, Marc Faber Limited, now in
Thailand. Why there?
I moved to Thailand in 2000. I still keep an office in Hong Kong.
Who gave you the title "Doctor Doom?"
Well, I had predicted the 1987 crash and then it happened and then
I was predicting in '88 and '89, the crash of Japan. The first person
who gave me the name was Nury Vittachi. He was a journalist at the
South China Post and an author of several books; he also
had a very popular column in the Post, called "Lai See."
A book written by Nury Vittachi was entitled Doctor Doom - Riding
the Millennial Storm - Marc Faber's Path to Profit in the Financial
Crisis. Do you still work with Vittachi? What was the book about?
The book is a personal account of my life in Hong Kong in the 1980's,
but I believe it was published in the early '90's.
Your company, Marc Faber Limited, acts as an investment advisor,
concentrating on value investments. Are there lots of value investments
today? Would you elaborate on your investing philosophy?
Well I think when we talk about value, there is value in the purchase
of certain assets if they are depressed and neglected. I also suppose
there is value in selling short if assets are way above what I would
call an equilibrium price or way above the trend line price. So,
value can be interpreted in many different ways. You cannot be too
rigid. I don't think there is a clear-cut definition of what value
is and each analyst has to decide for himself where he finds value.
value will emerge when things look bad for a corporation or a country
or an industry, because market prices will fluctuate more than the
fundamentals. In other words, if you look at the price of gold and
you look at gold shares, the gold shares will be more volatile than
the gold price. Or look at the price of real estate; the price of
real-estate related companies will overshoot and undershoot. Some
unusual opportunities eventually arise, either on the short or on
the long side.
You also act as a fund manager to private wealthy clients. What
do you recommend to them? Why do they come to you?
The clients I have now, I have had for 20 years. I haven't taken
new clients for 12 years. They come to me because they recognize
that I have a slightly different investment strategy than most portfolio
managers or funds managers. They are remunerated according to whether
they beat the index or not. So, if the index is up 20% and the fund
manager is up 22%, he's done a good job. Or if the index is down
30% and he's down only 29%, he's done a good job. My clients are
different. They want to see a return every year, even if the return
Your current if eccentric tag-line is: "buy a
$100 US bond and frame it to teach your children about inflation
by watching the US bond value diminish to almost nothing over the
next 20 years." Why are you negative about US Treasuries?
We have to distinguish the short term and the long term. I think
about two months ago, I turned quite positive for US Treasuries.
But obviously long term, at less than 3% yield on a ten year US
Treasury, I don't see any value. I think that interest rates in
time will be much higher because the fiscal deficit will stay very
elevated or even increase and that will impair the ability of the
government to pay the interest. If the ability to pay the interest
is impaired, there's only one way out and that is for them to print
money, and so eventually you will get higher interest rates.
What caused the crash of 1987? Was it caused by a currency agreement
between the Reagan White House and Japan? Please tell us about that.
Well I am not sure what caused the crash but the market started
to go down in August '87. The market had become immensely over bought
and there was a lot of speculation and investor sentiment played
on one side the bullish side. So I think a correction was
easy to predict and that the crash would happen. As I said, it was
an accidental thing, but I had predicted it and then it happened
one week later. In other cases, like the NASDAQ or the Japanese
market crash, it took longer.
You predicted the rise of oil, precious metals, other commodities,
emerging markets and especially China in your book Tomorrow's Gold:
Asia's Age of Discovery. How did you know?
Basically, commodities move in long-term cycles and they had peaked
out in 1980. After 1980, they had been in a downtrend, including
oil and industrial commodities. When the incremental demand from
China kicked in, it was an easy call to say, "eventually commodities
will go up," given a 20-year bear market and they were extremely
inexpensive compared to NASDAQ stocks.
You also correctly predicted the slide of the U.S. dollar since
The US has essentially one advantage and that is they issue their
governments debt in US dollars. In other words, they have no mismatch
of assets and liabilities. So, that's imperative to printing money.
When you read the notes and the speeches from Mr. Bernanke, it's
very clear that he would rather take the weaker dollar, than to
have domestic style deflation. So, I think that there are several
factors that point to a declining dollar, but I have to say the
other currencies are not much better. I would also say the purchasing
power of the Euro has gone down, along with the purchasing power
of the Swiss franc, which has also dropped when we measure what
kind of basket of goods we can buy in Switzerland today compared
to 10 years ago.
You said at one point there were no value investments left except
for farmland and real estate in some emerging markets. Do you still
I think that I was lucky because I kind of predicted the 2008 financial
crisis; it took a while until it happened and I was worried about
it for a number of years. If someone today would receive a billion
dollars, it will be quite difficult to make a lot of money in the
next 10 years. I am not saying if he puts the whole billion in gold,
maybe gold will go up or if he puts the whole billion in silver,
silver will go up. It would be quite risky for an investor to put
the billion in one asset. Even if he diversifies, I don't think
he will make a lot of money.
I think we
had the collapse of the financial system in 2008; the failed institutions
and failed system were bailed out by government. Ultimately governments
will fail. The US and Europe will print money, and when everything
fails, they'll go to war and then we have the complete collapse.
You said in 2007 there was going to be a crash, but you also said
US equities were only moderately overvalued. Would you tell us more
The market based on price earnings was not incredibly over valued.
What concerned me was the over-valuation in real estate and in financial
stocks. The overall market wasn't selling at 80 times earnings,
like Japan in '89 or the NASDAQ in March 2000. From that point of
view, there wasn't a tremendous over-valuation. What was happening
in 2008 was that there was an earnings collapse in the financial
sector accounted at the peak in 2007 for over 40% of S&P earnings
and obviously the S&P earnings collapsed. 2008 was not really
a financial crisis and we have come out of it. In 2007, there wasn't
a huge over-valuation, but there was a concentration of money in
the financial sector.
Do you still expect hyperinflation?
In my view, the debt level, especially in the US, if we include
the unfunded liabilities of Medicare, Medicaid, Social Security
and these entitlement programs, is beyond repair. And this will
necessitate printing more money. Also, in my view, there is no real
political will to address the issues, because who ever would cut
entitlements, will not be re-elected. So we have a tyranny of the
Did you miss the stock market rally of the last two years?
No, as I said, I felt positive in March 2009. Starting about a year
ago, I became more cautious. Since February of this year, I am kind
of concerned that the market is building something more significant
than just a short downturn correction. This is a distribution phase
and for the market to make a new high, above the recent high, will
What has been your position on gold and silver? Do you expect the
purchasing power of either or both to go higher?
Well I basically focus more on gold than silver, although I am on
the board of a company, Sprott Inc., that is identified with a very
bullish view of silver. I prefer gold. My view is, yes, I have been
positive for gold for the past 10 or 12 years and I could make a
case that gold today is cheaper than it was in 1999 when it was
at $252. Cheaper in the sense that if I compare gold to international
reserves or to the increase in the credit markets in the world,
I don't think it's expensive. And yes, I think it will go higher
or, expressed differently, that paper currencies will go lower against
the value of gold. But this will be an irregular process, and along
with this move into US Treasuries and away from risky assets, I
wouldn't be surprised if the price of gold went down $200. It's
not necessarily a prediction, it just wouldn't surprise me.
Tell us about your report. Why you named it what you did and how
people can get it.
I have two reports, the written, printed report called the Gloom,
Boom and Doom report, which is relatively detailed and focuses on
monetary issues. Then I have a website report which is sent out
by email and people can inquire about it on the website, www.gloomboomdoom.com.
Here is a famous quote: "The federal government is sending
each of us a $600 rebate. If we spend that money at Wal-Mart, the
money goes to China. If we spend it on gasoline it goes to the Arabs.
If we buy a computer it will go to India. If we purchase fruit and
vegetables it will go to Mexico, Honduras and Guatemala. If we purchase
a good car it will go to Germany. If we purchase useless crap it
will go to Taiwan and none of it will help the American economy.
The only way to keep that money here at home is to spend it on prostitutes
and beer, since these are the only products still produced in US.
I've been doing my part." Is this really true?
Well, actually beer is now mostly owned by foreign companies. In
reality, America still has a very large manufacturing base and we
shouldn't underestimate that; there are some very good companies
in America. At the moment, it's meant as a joke. But it is true
that the problem of America is consumerism. By encouraging this
leverage on the consumer level, particularly in the housing market
and on credit cards, which is the worst, America has lent to a consumer
economy and an economy that doesn't spend enough on investment.
are infrastructure expenditures. They are expenditures for education,
research and development, and plants and equipment. A lot of money
has been channeled into wasteful government administrations. The
smaller a government is, the more dynamic the economy will be and
the larger the government is, the more stagnant the economy will
There are exceptions
to this rule. The Nordic countries of Norway, Sweden, Finland and
Denmark, have very large governments but I suppose in small countries,
you can run the country like a country club where people essentially
develop solidarity and say OK, we pay high taxes but we have
very good health care; OK, we pay high taxes but we have very good
schools for our children. So let's say in Norway and Finland you
don't need to send your children to private schools, but in America
it would be difficult to send your children to government schools
because essentially they are inefficient.
You serve as director or advisor of a number of investment funds
that focus on emerging and frontier markets, including Leopard Capital's
Leopard Cambodia Fund and Leopard Sri Lanka Fund. You seem to believe
a lot in emerging markets. True?
Yes. I think the world is in a gigantic transition. The growth will
be in new economies, countries like India and China. This trend
I think, will be with us for a very long time. It will be a contributing
factor to geopolitical tensions because obviously the West will
not be very happy to see its super power status diminish relative
to the rest of the world.
Would you say you are an Austrian when it comes to economics?
Yes, but I think we can't be overly dogmatic in economics because
certain things may work for one system and other things may not
work in another system and so forth. Economics is a very complex
system and is essentially human life and the behavior of humans.
So to build one theory around it is probably wrong. Sure I am leaning
more to the Austrian school, particularly when it comes to debt
cycles. But I have sympathy for the Keynesian approach if, and this
is a big question, IF it is implemented properly.
In other words,
the business cycles will lead to excursions of prosperity and during
these excursions into prosperity the system should build up reserves.
Then when the excursion in depressions occurs below the trend line,
use these reserves. But the problem with Keynesian economics has
been that in the excursions into depression the reserves were always
used but were never accumulated in the periods of prosperity, and
so you build up larger and larger government debt and print more
money; that is the problem. It's the problem of democracy.
What do you think of Ludwig von Mises?
I have a high regard for all the Austrian economists, but I also
have a high regard for other economists. They made many contributions
to the understanding of economics. I have little understanding when
it comes to Ben Bernanke because he disregards the entire importance
of credit and is obsessive about credit growth. Also Alan Greenspan,
I mean, credit expanded much more rapidly in the past 30 years.
This is not sustainable. Maybe for 10 years, but not in the long
run. That they completely disregard the danger of leverage will
always remain a mystery to me.
Is there a cartel of wealthy banking families that runs the world?
Are they located in the City of London? Do they by any chance seek
one world government?
I don't know. I think there are some very important banking dynasties
for sure. People sometimes refer to them as the Rothschilds and
that they have benefitted from wars so I am not sure I would
want a one-world government. When I compare my life today to the
life I had in the 50s and 60s, we have much less freedom. Everything
is regulated as the governments have become like a cancer; they
keep expanding and regulating and dictating everything. In my opinion,
this creates not a very favorable environment in the Western world.
Is the EU going to collapse? Just the euro?
This is a political question and it will depend on the political
will. The euro in my opinion will weaken against the US dollar in
the next couple of months and along with the dollar it will weaken
against the price of gold in the long run.
Is the dollar finished as the world's reserve currency?
It's not finished as the world's reserve currency; it will continue
to exist for a while. But obviously there will be competition and
there will be currencies people trust more than the US dollar. I
think the US dollar has lost prestige. When I think of the 50s or
60s, the US dollar was worth a lot of money and people trusted the
US dollar and also the United States. At that time, it was by far
the leading economy in the world; that prestige will continue to
What will take its place?
That I don't know, but I think in Asia we will have currencies that
will be important. I don't think we can have united currencies the
way we have the Euro because there are numerous political disagreements
from the expansion of the influence of China. Obviously, the Chinese
currency will be an important currency in Asia.
Do you have any thoughts on Real Bills? How about free banking?
I think the idea that you have different banks issuing their own
currencies is not a bad idea. The bank that has a very conservative
balance sheet will have a strong paper currency and the ones with
a weak balance sheet will have a weak currency. There is some merit
between having competition this way, and we have that with currency
issued by different governments. Some are more desirable than others,
like Canadian dollars, Australian dollars, the Swiss Franc ... but
that hasn't always been the case. In the US, because of the political
process, I have my reservations, I think it's already too late.
Are you hopeful about the world's economic future in the long term?
I suppose the world will always develop but that we will always
have periods where we have wars and tremendous wealth destruction,
or where we have plague and where the population shrinks. I am optimistic
about certain issues and pessimistic about others.
What are you working on now?
Every month I am writing my report, so I am always working on something.
But I am not working on anything new or writing any books because
I don't have the time. I will again in the future.
Thank you for your time and a very interesting interview.
This was a
lot of fun. You have to read the interview closely, but if you do,
you may start to sense a kind of musical quality in the way Dr.
Marc Faber responds. Ask him a question and you get back free-form
jazz riff, complete with prices, dates and macro- and micro-elaborations.
To be Dr. Marc.
Faber is to have a head that is constantly processing data, comparing
it to other data and putting it into a larger context. You can hear
it if you listen. He's like Charlie Parker "The Bird"
the great alto-saxophone composer. Ask Marc Faber a question
and the answer just pours out of him. He may have an eidetic memory
remembering virtually everything about every day, at least
as it relates to finance. He sure remembers a lot, specific prices,
him, one is reminded again that there are few accidents when it
comes to achievement over time. People who have success, especially
when it comes to investing, are usually pretty smart. That's not
say there aren't plenty of fund managers who ride the market up
and then all the way back down, but Faber has been doing what he
does for decades and is still in business. He hasn't had the crutch
of a big financial firm to support him. For the most part, he's
done it on his own.
We found several
quotes of his to be most thought provoking. The first one was this:
"We had the collapse of the financial system in 2008; the failed
institutions and failed system were bailed out by government. Ultimately
governments will fail. The US and Europe will print money, and when
everything fails, they'll go to war and then we have the complete
We surely agree!.
We've written over and over that the dollar-reserve financial system
basically died in 2008. The Federal Reserve and other central banks
have by now apparently handed out tens of trillions in low-interest
loans and outright "investments."
In fact, we've
estimated that this financial "crisis" will eventually
result in an aggregate of US$100 trillion being injected into the
West's "free-market" economies by central banks and fiscally,
too, before this current episode of fiat money insanity trickles
to a close. Invest US$100 trillion into ANYTHING and you are basically
re-setting the system, whatever it may be. You are showing, by your
actions, that it doesn't exist anymore.
are endless. Europe is collapsing. UK and America may be next. Unlike
Dr. Faber, we expect China to collapse as well. Doesn't matter about
the region or the cycle. China's financial system is Western
actually worse than Western. We don't believe you can trust a single
Chinese number at this point. They're building empty cities and
ghost highways throughout that vast country.
China is an
inflationary accident ready to happen. We'll be surprised if the
landing is soft. If it IS hard, like a bowling ball, it will knock
down a lot of other economies as well. Europe is already teetering.
America is on the brink. Japan is savaged. Imagine what a crash
in China will do to Western economies.
If China does
crash, or even if it doesn't, the US dollar reserve system is pretty
much finished. Something else is in the air. Something else is destined
to take its place. The "crisis" shows no sign of receding
in our view; in fact, doubtless there will be more financial stimuli
as time goes on. None of it will be any more effective than what
has gone before.
The only solution,
as Dr. Faber says (and as we regularly write), is war. And war is
what we are starting to get. There will be more of it. Nothing else
will suffice. The elites are desperate to retain their seat at the
head of the table. Let chaos reign.
us to the other quote we found interesting. Dr. Faber seems positive
about John Maynard Keynes, a Fabian Socialist and Bloomsbury member
who believed that the implementation of economic leveling was to
take place via trickery in order to maintain the current system
with its elite beneficences.
As believers in free-market thinking, we can't conceive that government
interventions into the marketplace EVER result in anything good.
In fact, this latest crisis shows once again that Keynes' approaches
are basically bunkum. It is impossible for bureaucrats to save up
currency in the "good" times to anticipate the bad ones.
It's like asking a heroin addict to build up a stash in anticipation
of scarcity. Won't happen.
But let us
not quibble. We return to our fundamental observation that, like
a great musician, Dr. Faber does what he does because he CAN
perhaps unconsciously. He makes market calls within a week of their
occurrence. He turns a profit when others do not. He talks at one
point about sensing where the market is headed. This is certain
kind of talent. Investing as an art form.
to listen to. Read between the lines and you may come to the conclusion
as we did, that he's holding back in a few places. A smart guy.
Success, no accident.
with permission from The
Wile is an author, columnist, media commentator and entrepreneur
focused on developing projects that promote the general advancement
of free-market thinking concepts. He is the chief editor of the
popular free-market oriented news site, TheDailyBell.com.
Mr. Wile is the Executive Director of The Foundation for the Advancement
of Free-Market Thinking – a non-profit Liechtenstein-based foundation.
His most popular book, High
Alert, is now in its third edition and available in several
languages. Other notable books written by Mr. Wile include The
Liberation of Flockhead (2002) and The Value of Gold (2002).
© 2011 The
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