Episode #305: Marc Faber, The Gloom, Boom & Doom Report, “The Environment We’re In Favors Quick Profits And Long-Term Loss”

Episode #305: Marc Faber, The Gloom, Boom & Doom Report, “The Environment We’re In Favors Quick Profits And Long-Term Loss”

 

Guest: Marc Faber set up his own business in June 1990, publishing a widely read monthly investment newsletter “THE GLOOM BOOM & DOOM” report which highlights unusual investment opportunities. 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 magna cum laude.

Date Recorded: 3/9/2021     |     Run-Time: 58:06

Summary: In today’s episode, we begin with by hearing Marc’s thoughts on why governments mishandled the COVID response in the last year, and what he expects the long-term effects from both the monetary and fiscal responses will be going forward. Then he shares his thoughts on why he thinks more and more of the younger generations favor socialism. We touch on the financial speculation in the markets, particularly with Robinhood options trading.

As we wind down, we hear where Marc thinks you can put some money to work. He shares his thoughts on gold, Asian equities, energy and financials.

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Comments or suggestions? Email us Feedback@TheMebFaberShow.com or call us to leave a voicemail at 323 834 9159

Interested in sponsoring an episode? Email Justin at jb@cambriainvestments.com

Links from the Episode:

  • 0:43 – Intro
  • 1:31 – Welcome to our guest, Marc Faber
  • 2:29 – Origins of the last name Faber
  • 5:13 – What does the world look like to Marc right now
  • 8:02 – The impact of COVID-19 on small businesses
  • 10:45 – Differences between romanticized socialism and true socialism
  • 13:27 – Potential ripple effects of the government’s fiscal monetary response to the pandemic
  • 16:32 – Silvio Gesell ideas about consumption shortfalls
  • 20:27 – Is our government being foolish? Are other governments handling this better?
  • 23:04 – Triumph of the Optimists: 101 Years of Global Investment Returns (Dimson)
  • 23:57 – Improving North American financial literacy in the education system
  • 25:23 – The internet’s ability to give power back to the people
  • 31:12 – Sponsor: Bitwise
  • 32:04 – Course correcting the mindset of short-term gain investing
  • 37:44 – Robinhood isn’t the good guy, and fees should be redistributed to the end user
  • 42:13 – Global Asset Allocation: A Survey of the World’s Top Asset Allocation Strategies (Faber)
  • 43:10 – Is gold still a worthy position to have in your portfolio?
  • 46:32 – Countries and sectors that Marc is bullish on
  • 54:00 – Thoughts on the current political landscape
  • 57:10 – Learn more about Marc; gloomdoomboom.com

 

Transcript of Episode 305:

Meb: Today’s episode is sponsored by Bitwise. You’ll hear more about them later in the episode.

Welcome Message: Welcome to “The Meb Faber Show” where the focus is on helping you grow and preserve your wealth. Join us as we discuss the craft of investing and uncover new and profitable ideas all to help you grow wealthier and wiser. Better investing starts here.

Disclaimer: Meb Faber is the co-founder and chief investment officer at Cambria Investment Management. Due to industry regulations, he will not discuss any of Cambria’s funds on this podcast. All opinions expressed by podcast participants are solely their own opinions and do not reflect the opinion of Cambria Investment Management or its affiliates. For more information, visit cambriainvestments.com.

Meb: Welcome podcast friends. We got an extra special episode for you today. Our guest is the editor and publisher of the “Gloom, Boom & Doom Report” which highlights unusual investment opportunities all around the world. Today’s episode, we begin with our guest’s thoughts on why governments mishandled the COVID response in the last year, and what he expects the long-term effects from both the monetary fiscal responses will be going forward. Then our guest shares his thoughts on why he thinks more of the younger generations favor socialism. We touch on the financial speculation markets, particularly with Robinhood and options trading. As we wind down, we hear where our guest thinks you can put some money to work. He shares his thoughts on gold, Asian stocks, energy, and financials. Please enjoy this episode with the “Gloom, Boom & Doom Reports.” He says Faber, I say Faber, Marc Faber. Marc, welcome to the show.

Marc: Well, thank you for having me.

Meb: Where in the world do we find you today?

Marc: Well, I’m in north of Thailand. And, remarkably, it’s still quite cold. Normally, around this time of the year, it’s already very warm. The peak heat will be in two or three months, but this time we have cold at night since December up to now.

Meb: I need to get over there. I’ve never been… I can’t say I’ve never been. We did a stopover. I took my mom, we went on a mother-son trip to Bhutan a few years ago and we stopped in Bangkok for a day just to re-acclimate, and take some cooking lessons, and hang out. But I need to spend some time in Thailand when the world starts to reopen. I haven’t spent that much time in Asia, and as a global investor, that’s pretty shameful. So I’ll definitely drop you a line when things get back to normal. Hopefully, soon.

Marc, we’ve got to start with a question that I’ve probably received a hundred times over the past couple years which is, my last name is Faber, your last name, I believe, is pronounced Faber. And so everyone always asks me, “Are we related?” So what do you think, do we have a long-lost cousin somewhere? You’re originally a Swiss, right?

Marc: Well, the thing is this in my family, we have a book about the family Faber and about old families in Huguenot families. Originally, we are called Fabre, F-A-B-R-E, Fabre. Like, you say Faber, and like, I would say Mr. Faber. And then, there is also Favre, F-A-V-R-E. So, they’re different. And these Huguenots in the 16th century they went to Holland to the low countries, to England, and some went to Germany, and some went to the area in Switzerland called Neuchatel. At that time, it didn’t belong to Switzerland, but it belonged to the kingdom of Prussia, the Prussian empire. But they started to make watches near Neuchatel, that’s why most of the watches in Switzerland, they’re not an invention of the Swiss, nor of the Chinese, nor of the Americans, it’s a Huguenot invention. They brought the watch-making skills from Paris to areas of Germany and Switzerland.

Meb: I love it. Well, I’m getting a lesson in Faber history because my father’s side immigrated to the Midwest, Kansas-Nebraska which is a lot of sort of French-German immigrants did. And we can trace it back to…it’s like kind of Northeast France…area. And I think Vogue’s France sort of part of the world. But I’m sure you go back a couple of hundred years, that general area is probably where they were from as well.

Marc: In Germany, there is a very famous family. He’s a friend of mine, we went to school together. And that is the family who owns the pencils, Faber pencils. And in England, there is a publishing company called Faber and Faber.

Meb: Right. Well, I’ll just tell everyone we have a common great grandfather so they’ll figure it out. Well, so, you know, as is already evident for all the listeners, Marc, you’re a big student of history and markets. And I’ve been following your work and writings for many, many years on the “Gloom, Boom, Doom Report” as well as your books and everything. And it’s a big appreciation for a global approach to investing, but also for cycles and history. Let’s just start with 2021. What does the world look like to you right now? Things look totally normal, a little weird?

Marc: Well, you know, for people who have been brought up in a conservative environment, we think the world has gone completely mad. So this is the answer. But, maybe, we, the conservative ones, are not the criteria. The question is really, in the Western world, the belief came up that the best systems are democracies, okay? So we have 5,000 years of recorded human history, and we have 200 years of democracy. Of those 200 years, not even 70 years are full democracies. Because, as you know, in the 19th century, not everybody could vote. Until the 1930s, in America, women couldn’t vote. And I’m from Switzerland, until the mid-1990s, we had some areas in Switzerland where the women couldn’t vote. So the idea of democracy has never been implemented in the sense that everybody should vote. What the idea was of democracy in Greece was that some people could vote. That you had an elite, they would be voting. We have in China, the Communist Party is democratically organized. It’s a one-party system, but the million members or so, they will vote for the people that go upstairs and climb the hierarchy.

I never said that democracy was the optimal system. Because as we’ve seen this year, I was told that democracy ensured freedom. But this year, some dumb irresponsible bureaucrats, they come and tell me to close down my business, my tattoo salon, and my hair salon, and my restaurant, and my coffee shop, you understand? This has never happened in history before, that the government would come to you and say, “You have to close down your business.”

Meb: And very much, in some countries, that’s a lot easier said than done, the response to the coronavirus. And in some countries even like the U.S., it’s been a huge spectrum of different approaches where Texas right now is totally open, California, not in many different ways. We’ve kind of seen the, oddly enough to say, the benefits and drawbacks of centralized rule in this sort of environment for better or worse.

Marc: Well, I have to say, personally, I haven’t seen many benefits of closing down people’s businesses. There may be some, but I haven’t seen them. But I’ve seen a lot of disasters, you know, where people have really lost their savings, their livelihoods. Assuming you are 35, 40, you worked all your life and you have savings. And then you open a restaurant or a coffee shop with the money that you accumulated, your savings, or you open a hair salon, or clinic, a dentist clinic. And suddenly, they come and tell you, “No, you have to close it down.” What happens then, with your investment? This is a complete disaster.

Meb: It’s hard. We have some friends that are restaurateurs in LA, and LA has been particularly nonsensical where the rules change like every month, it’s been back and forth. And like you mentioned, many have not survived. Some are, but it’s been really hard, particularly for the restaurants here.

Marc: The people that take these decisions, just look at Cuomo. The guy really doesn’t know what to do, he has no clue. I mean, he sends sick people into nursing homes. It’s unbelievable. It’s hard to believe. But the Americans, they sit there and they think, “Actually, so what? I mean, it’s not so good but it’s not so bad.” I always say, the moment the government gets involved in something, the conditions deteriorate right away. If you leave the market operating on its own, there are some disadvantages with that policy, and then there is some hardship. It’s like with capitalism, there is some hardship. But I can assure you, you should have seen the socialist countries when I saw them in the ’50s and ’60s, what hardship occurred there under socialism and communism. There, I’d say, anytime, I’d take the hardship of capitalism.

Meb: If you look at the shifts in belief systems, whether it’s in the U.S. or elsewhere, as you mentioned, socialism has been brutal, pretty much, everywhere it’s been tried. You even see what’s going on in places like Venezuela now. But there’s a certain romance to it that over and over again, young people seem to be attracted to. Is that a failure of education? Like, how do we think about structures, and what does the future look like for countries? I mean, you have some of the largest democracies in the world now, not necessarily in the U.S. but different flavors in India, in Indonesia, etc. Any general thoughts on how to think about that here in 2021?

Marc: Well, I think that people who never experienced hardship, they lean towards the view that, yeah, the government should pay for this and the government should pay for that. And also, as Ludwig von Mises said, you know, “Only people who are in favor of socialism that have no clue about economics.” There’s always something in life that is important whether it’s in your village, or in a city, or a country, or in a corporation. And this is, how much does it cost? This is an important point. If the cost of implementing some measures are unreasonably high compared to the benefits, then you shouldn’t do it. Everything has to have some relationship between cost and benefits. And what you said earlier about socialism, it’s been mostly a failure in large countries. I can give you a few countries including Norway, Finland, Sweden, Denmark where you have a fair amount of socialism and where it works reasonably well because these are small societies. We’ll see how well it works in future with all the immigrants, you understand? Because now they have to pay also the immigrants not just for their own population. So how it works in future will have to be tested. But I’m just saying, over the last 50, 60 years or so, these countries have done okay.

Meb: There’s been a lot of discussion of fiscal monetary responses to the past year that, even if you’d gone back 10 years ago, I think, would have been surprising. Even surprising now and we live in a world of things like negative-yielding sovereigns. People talk about MMT. How do you think about, you know, long-term commoner on central banks, their approaches to what’s going on? What’s your general thoughts on how these governments have responded and any ripple effects this is likely to have?

Marc: Well, I’d say this. When I grew up, I was born in ’46 so just after the war. And as I grew up, I spent a lot of time with my grandparents. And it was absolutely natural that you would save some of your money. In other words, you would go and work. And maybe 10% each month, you would put aside as savings because we had just gone through a war period, which was very unpleasant. Even though Switzerland wasn’t directly involved in the war, we had rationing, we didn’t have enough food. I remember very well, each person got an egg every two weeks. So half an egg per week, this is what we had. There was a black market, but normal people didn’t use the black market. Some people didn’t use it because they had like a hotel and they had to feed the foreigners who were staying at the hotel and so forth. But in general, times were very difficult. The saying was, “You save some money and you put your money into a savings book with a bank.” That is safe.

Real estate, you buy because you want to live somewhere and so forth. But you don’t buy it because it will go up in price. And stocks, nobody talked about stocks in the ’50s. This was an unknown subject. It came up in the late ’60s because there was an American technology boom. So that made stocks then famous in Europe. And there were some American mutual fund companies like Templeton, and IOS, Bernie Cornfeld and so forth. So they made stock investing popular. But what I wanted to say, in those days, and as I went to university, I started university in 1964, nobody ever spoke of negative interest rates, and nobody ever thought of having negative interest rates introduced as a policy measure. There was a discussion very briefly, but not at university, about a mad kind of a character called Gesell, Silvio Gesell. He was born in Germany, a socialist, and he had been expelled from Germany. And he settled in Europe in Switzerland mountainous part.

He wrote books about monetary matters including one that essentially explained that one of the problems of economics was that, because people would save money, there would always be a lack of consumption. The famous consumption shortfall by Keynes. And, therefore, what you had to do is induce people to consume. You’d have to do this by either issuing money that had an expiry date. Say, I print money today, and it expires in a year’s time, or by introducing negative interest rates on that deposit. But when, in the ’70s, interest rates went from 6% on treasury bonds in 1970, to 15.84% in 1981, okay? We were at over 15%. I can tell you that nobody in the whole world dreamt that interest rates would go, and in Europe, be, in most countries, negative and that Portugal would have lower interest rates than the U.S, nobody.

So there are lots of things that have happened that we never envisioned. And also I remember when the great debt explosion occurred in the 1980s, I had some friends at Merrill Lynch, Charlie Minter, and Stan Salvigsen, and… They essentially said, “The debt expansion is not sustainable, the system will break. We have to, kind of, reduce the debt gross in the U.S.” And what happened, that then accelerated on the upside, nothing was reduced. So, lots of things occurred that we never thought about.

Meb: I was smiling as you were telling this story because my father used to talk a lot about… He was born before you and the ’30s but grew up very poor in Nebraska, like outhouse style poor. And he used to say for Christmas, what they’d get for Christmas was a new pair of blue jeans, which they then wore the rest of the year. And we used to talk about growing up in that sort of environment during and after the war. And I said, “Look, the challenges and the hardship color so many of your ethics and beliefs the rest of your life.” Do you regret the difficulties growing up? And he said, “Look, we still got to play baseball, we still got to have fun and we survived. And reflecting back, it certainly wasn’t pleasant at the time.” But certainly, it has a different feel, in many cases, to where we are today in 2021 with a lot of the MMT. I know you’re a student of currencies in particular, and have talked about countries that have really struggled with their monetary and fiscal policies both. Do you see where we are in modern times as being foolish? Are there any particular governments that seem to be doing a better job than worse? What are your general thoughts as you look around the globe?

Marc: Well, I think the answer is really to quote Milton Friedman the economist who is actually hardly ever quoted because the modern economies don’t agree with his sound economic theories that were in favor of small government and large private sector. So, the economists of today, they don’t like to quote him. But he basically said, “If we look at history and we compare the different systems, there’s only one system that has lifted the prosperity in the world to the same extent and reduced the poverty rate as much as we’ve done with the capitalistic system.”

Despite of all the criticism about it, the fact is simply that never before in history have there been this much prosperity in the world. When you think about it, in the 15th century, the prince, and the lords, and the barons, and so forth, they were eating different food than ordinary people. Today, everybody eats a hamburger including president Trump, you understand? And everybody drinks a Coca-Cola of the same quality. Mr. Buffett who is one of the richest people in the world, he doesn’t drink a Coca-Cola of a higher quality than you do. He has precisely the same can. Whereas, in aristocratic societies, the feudals, they had better quality wines than you had, they had better quality meat than you had and so forth. I think that the critics of the capitalistic system, they don’t see, sufficiently, the benefits that capitalism has brought along. And, you know, I studied the Russian Revolution quite carefully. I mean, all I can say, it wasn’t a very pleasant time.

Meb: The Russian Revolution is one of the two examples we give, I believe. You know, one of my favorite investing books, “Triumph of the Optimist” that kind of walks through all the various market returns over the past 120 years and there being a couple of examples of when the financial markets essentially shut down altogether, one in Russia and one in China. And then many others, of course, where you had devastating losses at one point including in the U.S. But just about every country, you know, at some point has some pretty massive declines. Although, I think Switzerland may have the lowest real stock market drawdown of all the countries. Does that sound about right? I think that might the case, I’d have to go look at my data again.

Marc: But the return over the longer term wasn’t particularly good, but it was okay. It was better to be in cash than in bonds.

Meb: As we shift around from policies, I have one more policy economic question and then we can hop over to markets. One of my struggles, particularly in the U.S. is that we don’t teach any sort of personal finance and investing in schools. Market history is useful as well, that gets a little… But even just the practical basics. Do you have any suggestions for, like, as we talk about capitalism and socialism in general, just personal finance knowledge? Is it hopeless, is it something that can be taught? Any general thoughts on how we can improve that here and around the world?

Marc: I think the best is for the teachers to stay away from teaching anything. That is my view. I mean, quite frankly, when I see some of the education level around the world, especially in some schools in the U.S. they have to scratch your head. Are these people are really claiming to be the superpower of the world with their extremely limited knowledge? I mean, I always said, I’d rather have Trump than many other presidents especially Hillary Clinton. Mr. Trump himself is a complete ignoramus. He doesn’t have a clue about anything. And Mr. Biden may have a clue but he doesn’t remember it.

Meb: How much of a role do you think that the Internet will play? I mean, I’m hopeful in the sense that, that can be the great disinfectant and democratizer where people have internet access and can get access to the best education at a much lower cost. Is that just being a little too optimistic and dreaming on my part?

Marc: Well, again, there are different views. The other day, my nephew who is 17. He is a son of my late brother. He sent me an email and he said, well, that he hoped that I also bought GameStop and that I bought some Bitcoins. And then he explained to me a while ago, “I wanted to buy Bitcoins.” But he couldn’t because at 17, you can’t open an account. So he asked his mother to open an account for him. The mother didn’t want to do that wisely. So, in Switzerland, apparently, when you buy a train ticket, at the same time, you can buy Bitcoins at the station, the railroad, the Swiss railroad company, it’s called SPB, Schynige Platte-Bahn. So, at his age, he bought. He said, “I paid $400. You know, it’s a fraction of Bitcoin.” But now he said, he sent me the statement, “It’s worth $1,700.” And so I scratched my head and said, “Shit. This dumb ass never invested in his life. I should have put all my money in Bitcoin when he did and it would have gone more than four times in a brief period of time.” So, I’m not say anything anymore.

Meb: Yeah. Yeah.

Marc: But I think it will end badly because these waves of speculation have never ended well. But we have to concede that if we have a lottery, okay? We launch a lottery for the whole of the U.S. And at the end, there is in the lottery, a pot of $100 million or maybe $200 million or so. Someone wins, and accidentally, he wins the following month again. So, of course, people will look at him and say, “But this is a genius.” So, immediately, someone will Dow Jones or … will make a contract with him for him to write a book, “How to Win the Lottery” like the … ladies in the late 1990s. They claimed that they had a system to invest in stock.

And so, you know, these games, we call them the winners take all games. In the lottery, normally, there’s one winner and that’s it. The others don’t win anything. Depending, also, on how the lottery is structured. But, in general, there’s one winner. And because the payout is so big, the temptation of people to play is very high. You just go and look a Las Vegas, or go and look at online gaming, and so forth and so on. I’ll tell you what it does to a society. When you print money, you have ordinary people, they went to apprentice for carpenter, or for electrician, or whatnot. They earn, maybe, I don’t know, $2,000, $3,000 a month so, maybe, once they complete the apprentice, more. But these people work the whole month and they get $2,000, $3,000, $4,000 bonus. And then the buddy with whom they meet at the pub, they speculate in GameStop and they earn those $3,000, $4,000 every day. So the whole society moves to the printing machine. They all gamble instead of working. They stay home, place their orders with Robinhood. And that works for a while. For as long as you have someone who is really dumb at the Federal Reserve such as Janet Yellen, and they keep on printing money like also Jerome Powell. And as long as the money is being printed and given out to people as you say, it’s a modern monetary theory and so forth, this game can last.

But do you think that a society can build its wealth by, essentially, everybody sitting on the beach and having a money printing machine? It doesn’t work that way. It’s actually the recipe to an economic decay of greater proportions. So when you ask me, “We’re in the year 2021, where do we go, how do you feel?” I’m telling you that we are in a society in the Western world where we actually keep on criticizing people that are hardworking like the Chinese and the Indians who work the whole day in factories and produce goods. And we criticize and attack them for producing these goods, which, we in the Western world can buy at low costs. We don’t say, “Thank you.” We say, “Oh, they’re ripping us off.” No, we are ripping them off. We’re giving them dollars that, for sure, will depreciate in value.

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Meb: Yeah, you can certainly see lots of signs of excess. I mean, we have a thread on Twitter that, kind of, lists a bunch of charts over and over again that talk about valuations, and sentiment, and everything that’s going on. You mentioned a few of the highlights. Certainly, I saw a poll recently that was talking about what most of the young people plan on doing with their stimulus. And I think it was half said, “Stock market.” Now, if they told me they were going to put it in and lockbox it for 10 years, 20 years in a global portfolio, God bless them. But that’s unlikely to be probably the intention. And so I spend a lot of time. The struggle I have as a public manager is, you can see the money wash in and out of funds on a daily basis. And I’m trying to solve this issue by having some sort of, like, behavioral nudges or gates that really keep people trying to behave in their best interests. But it’s not an easy task because you can’t really require people to lock their money up necessarily or to invest in a thoughtful way. So it’s a constant struggle for me. The poor podcast listeners have heard me moan about it for years now.

Marc: Yeah, sure it’s a challenge. And I want to tell you something that people don’t understand. In the course of my life, I’ve known many traders, okay? The traders, they work for, say, Goldman Sachs or they work for Citi, or for UBS, or Credit Suisse, Barclays, whatnot. They trade currencies, interest rates, and stocks. But they have one advantage, they can see the order flow. You see, the orders from the customers come through the trading desks. They can see the market is buying, the market is selling. They can see a big buyer, each time the market is coming back a bit, he will step in and buy. Another one, each time the market is going up a bit, he will sell. That information is crucial to the performance of traders. Crucial.

Now, as it happens, a lot of these genius traders who became friends of mine over time, because I was actively dealing in equities, and bonds, and currencies and so I kept in touch with them. And they frequently gave up their jobs or they were given up. In other words, they were fired. Because, as you know, in London, there were lots of manipulative activities and so forth. So, anyway, once these traders were alone and they didn’t see the order flow anymore, okay? They didn’t see the order flow, they were now on their own in a room, or in an office, or whatnot. But the absence of the order flow killed them. And all the Robinhood traders, they have to be aware, their orders are channeled through people like Citadel. They actually buy the order flow from Robinhood and other brokers that are “commission-free.” And so in my view, trading through Robinhood is a little bit like going to the casino. The longer you will play in the casino, the greater the probability that you will lose money. Because the odds in a casino, by the nature of the casino that has to pay for the building and has to pay for the maintenance of the machines, they have higher odds of winning than the gambler. So the longer the gambler is in the casino, the more likely is he going to lose. And that, I think, young people have to understand.

The geniuses in our business, go and look at the big mansions and look at the big real estate holdings in the world, in Australia, in Argentina, in America, these are people that had businesses, they invested for the long term. They had factories and they built banks and so forth. They didn’t make it trading in and out. It’s just that the time now starting with ’80s of the money printing era, that time has favored the hedge fund guys. Partly, nobody knows why… I mean, I was a good friend. We haven’t seen each other for a long time, Dean Barron. He was one of the first with John Bogle to develop index funds. He always said, “Marc, the one thing that we cannot understand is that someone would give his money to someone else to look after it, pay him 2% per annum fee, and 20% performance fee.” When you think about it, it’s unbelievable that someone would do that, he doesn’t get 20% back if he loses. So, over time, all these hedge funds guys. And I’m not complaining, I’m also involved with the financial sector so I also had my cut. But I’m just saying that the environment we live in favors quick profits and long-term loss.

Meb: Yeah. You know, it’s funny, this was all going down this past quarter, I mean, I’ve certainly seen a lot of friends start to get interested in markets that aren’t normally talking about trading. And I’ve been very public on Twitter and elsewhere. And many of my opinions are unpopular. But one I was saying, I said, “Look, Robinhood is not the good guy of the story, I think that they’re the Sheriff of Nottingham.” And I said, “If you look at the three main ways they make money, payment for order flow being one, the short lending revenue, two, and then, obviously, the interest spread on your cash.” I said, “There’s $1 billion idea for someone out there. I don’t want to do it because it gets conflicting. But to start a brokerage that says, “Look…” If you’re going to sell your customers’ order flow, if you’re going to lend out their shares, default them into a margin account, not tell them. Lend out their shares and you’re going to keep the huge cash spread, at least share. Say, share like half of it. I think the best behavior is not to do it, but if you’re going to do it, share it with the end consumer. Because it’s, after all, it’s their stocks that they’re holding. And some brokerages do elements of that. So Interactive Brokers, for example, will share the short-lending revenue. Most public funds like ours return all the short lending revenue to the end investors as does Vanguard and others, but the brokerages don’t. And so I think it’s a business opportunity. We’ll see if anyone is interested in doing it. But to take advantage of this whole mess this year, at least, it’s drawn some light on what the brokers do.

But you mentioned such an important takeaway, which is everyone, has to be hyper-aware of all the costs involved in investing. And it’s not just commissions, but the fee we mentioned and the fees, massive hedge fund performance fees. Are there some that are worth it? Sure. You want to get into Medallion, maybe. Closed, too bad. But the fees can be a huge hurdle for performance over time. And having that long-term perspective, it’s tough.

Marc: I mean, Charles Ellis, we call him Charlie. He wrote a very good book. And he said, “Look, if you’re an investor, you better realize, like in playing tennis, are you a very good tennis player or a very bad one? A very good tennis player like Nadal, Roger Federer, Djokovic. They can play aggressively to win points.” They can hit the ball exactly where they want the ball to go to. Whereas Mr. Faber and Mr. Faber, they hit the ball. They’re lucky if it goes across the net. Certainly, in my case.

Meb: Absolutely accurate in my case as well.

Marc: So, my game has to be a game where you make as few mistakes as possible. Djokovic, he can play a game where he can take a risk to make some mistakes because he hardly ever makes a mistake. So in investing, you have to know yourself, are you a good investor or a lousy investor? I know many people, they’re very intelligent, but they’re bad investors until they can make up their mind about something. And number two, once they make up their mind that they are right, that nothing can go wrong. And I tell you, I’ve known so many people, this is not the first time, people were short in the Yen, they were shorting Japanese JGBs, they were shorting Tesla. These were all obvious cases where the thing was going to go down one day. It just didn’t happen at the time they were expecting. And I can tell you, a lot of these obvious shorts, as well as obvious longs, have been graveyards. I know I’m not a particularly brilliant investor so I diversify. You know, I have some precious metals, I have some stocks mostly in Asia. And I have some bonds, and some cash, and some real estate.

Meb: Marc, we had chatted a few years ago when we put out this global asset allocation book, which is, listeners, of course, is free to download online. And we modeled a lot of portfolios, generically speaking, of famous investors. And it wasn’t exactly, of course, what you invest in, but a broad allocation that mentioned assets that you just talked about. And it was funny, because, in all the portfolios in the book, what we call the Marc Farber portfolio has the singular honor of being the only portfolio, if you take it back to the 1970s, of having positive real returns in every decade. I think that’s true, I would have to re-look at it. There may have been another one.

Marc: Well, I’m happy it’s not negative returns.

Meb: Yeah, exactly. And so, the volatility of the decade returns was really low. But it’s interesting, the one, sort of, stand out, of course, in this portfolio relative to others is gold. Talk to us a little bit about how you think about it. It has had a monster run. It seems to be taking a break here in 2021 as interest rates come out. What’s the thesis? Does it still hold in this world of MMT even more so?

Marc: Well, it’s like Bitcoins. And in the case of Bitcoin, even more so, the quantity is limited. And so when you print money, you have more and more paper unit on less and less physical gold or on the 22 million Bitcoins that are outstanding or will be outstanding. So anything that you cannot multiply at the same rate as paper money, say because supply is limited unless it’s a fake. But they are somewhere fakes are very difficult to make because the quantity is very well known. … that many outstanding and no more. And the same would be the case of … or for Gutenberg Bibles, or old books, or the…There’s only one in the world. So, these things, they have an intrinsic value because you can’t multiply the way you multiply dollars and drop them by helicopter onto the U.S.

I think gold, and I don’t want to go into discussion here about the merit and demerits. There are some disadvantages and people before they buy it, they should know what they’re dealing with, you understand, and what the disadvantages are. One of them is obviously, if you, Mr. Faber, decides to visit Mr. Faber in Thailand, you cannot take 10 kilos of gold in your bag. But you could come here with $5 million worth of Bitcoins in your wallet. So these are things, you know, that… But there are some advantages of having gold and disadvantages of having crypto currencies.

My view is, I may not see it because I’m already aged as you can see. But I think we don’t know how the world will look like in 5 or 10-years’ time. Because, as I said earlier, I never expected certain things. When I saw interest rates going up in the ’70s, I never would have thought that they would go down to where they went down to and that they would distribute money, this MMT, and so forth. I never thought that the ideology of Marx socialism would, after all the disasters that it produced in Eastern Europe, in Russia, in China, that it would make a comeback. Not in those countries that had socialism. They don’t want it ever again. But in our Western prosperous democracy. That, I will never understand.

Meb: As you look at a lot of the proponents of capitalism, free markets, it’s often immigrants from the countries you mention that had experienced it or their parents. And they say, look, “You guys need to wake up. If you’d been through those periods in various countries, it’s a nightmare.” But that’s politics for you. So as you look around countries and stock markets, any particular… You know, we see a lot of the bubbly behavior in the U.S. But any particular markets look interesting to you? Are there areas of the world that you’re bullish on in particular sectors, anything else?

Marc: Well, I think oil, energy sector is in the early stages of a bull market and financials, banks, insurance companies. And then, you know, more old economy type of shares. I like the Asian markets. I think some of the Asian markets are not expensive. You know, people are very bearish about Hong Kong because the Western media is, of course, anti-China and they dramatize what has happened in Hong Kong a lot so they’re misinformed. I think Hong Kong has a great future but they have to keep out the foreign media. Because, you understand, the future of Hong Kong is not the life Hong Kong enjoyed between 1842 when it became a British holding until 1997, the lease was for 150 years.

Anyway, the future of Hong Kong is in combination with the so-called Greater Bay Area. These are cities like Shenzhen, Dongguan, Guangzhou, Macau and so forth. This is an area of close to 80 million people. And as part of this 80 million people that has a very high GDP per capita. You know, this is not the China in the far east, far-eastern China. This is a prosperous area. As part of that area, the Greater Bay Area, it has a great future. But it doesn’t have a great future if the American intervention is led by people like Victoria Nuland go and interfere into their affairs. I mean, I suppose the U.S. wouldn’t be very happy if the Chinese interfered into the affairs of a friendly country.

So all I want to say is, we have to be very open about the different perspectives we look at the world. The U.S. has been brainwashed in this exceptionalism and they don’t consider that other societies have had other traditions than the U.S. and have reacted or have to take measures in order for history not to repeat itself. Don’t forget, in the 19th century, both India and China were ruled by foreign powers. They don’t want this to happen again so there are certain reactions. But I would invest the money in India, and in China, and in Southeast Asia. I think that’s where the future will be. I think there are some stocks in Europe that have become value stocks. They’re reasonably priced, not terribly expensive.

But again, we have to look at it from the following perspective. We have zero interest rates. So if you have $1 billion or $100 million dollars, you can choose like my grandmother said, “You put it all in safe deposits.” Safe. Yeah, $100 million at zero interest rates is not particularly safe. So you buy stocks, you buy some gold, you buy some Bitcoins, you buy some properties. Then we have to decide where and this and that is another subject. My message is investing looks very easy when you buy something and the next day it’s up 10%. But to be consistently making money on your investment is not so easy.

Meb: Look at what’s going on now with a lot of the Robinhood and in day trading and in speculative stocks and expensive stocks and tech. And it has a lot of rhyme to the ’90s. And I, of course, can’t be too judgmental because that was me in the ’90s. You know, the names were different, I was using E-Trade rather than Robinhood. But I was in university and making all the same dumb mistakes. But gladly lost all my money when I was young and didn’t have much. But those are lessons that most of us traders go through at some point, hopefully, young and hopefully with no money. Because you eventually get the scars that last a lifetime and put in procedures, or guard rails, or portfolios that keep you from doing the really dumb stuff.

We talk a lot about investing globally. As you know, most investors, and this is true all around the world, love to invest most of their money in their own stock market. And it’s particularly true in the U.S. with this home-country bias. And so we talk a lot about diversifying globally and how many of these markets are much cheaper on a valuation basis than the U.S. is. A number of the Asian countries. Certainly, Thailand is in there, but Singapore, Malaysia, and then a lot of Europe. You touched on energy, which is fascinating to me just to demonstrate the cycles of markets where it went from 30% of the S&P all the way down to…I think it bottomed out at like 2%. I think it’s up to 3% or 4% now but it’s still a long way from 30%. So, yeah. Thinking about the diversification, I think, is important.

What else has gotten to you on your brain, Marc? It’s been a weird year with everyone in quarantine. You had some time to read a little bit, write a little bit. As a student of history, anything either you’re thinking about, you’re excited about? Anything that you’ve been reading about that’s great, got you confused, worried, happy? Anything come to mind?

Marc: Well, the one thing that I realized is how poor governments are. And when you think of it, you have in America… Okay, I’m not saying that the 330 million Americans are well educated. But say, we could say, maybe 30 million, 40 million, you know, 10%, 20%. And that they can only choose some of the worst characters, both in terms of personality and integrity to be their leaders, you have to scratch your head. I mean, it’s unbelievable. But it’s not much better in Switzerland. It’s not a complaint against the U.S., in Europe, it’s the same. For me, democracy has failed, period. I don’t know whether it’s coming off or it’s… I can’t imagine it will be very good.

Meb: Any guides to history that as the optimist in me would think that the amount of private market startup innovation that’s going on, science and technology makes up for some of the woes of our political leaders. It seems universal, at least, that citizens around the world almost always dislike the people that get funneled up to the top of politics. Anything on your brain as far as lessons of history that this particular time or rhyme are useful?

Marc: When you think about it, in the 19th century, it was an incredible, productive century in terms of inventions. Just think of the railroad, what kind of an invention it was. For the first time in 5,000 years of history, you could move people and goods at a faster pace than ever before, you understand? The Romans, they moved their legions at the same speed or probably a higher speed than Napoleon moved his armies. Because Napoleon, he had to move the cannons. These were unbelievably heavy things so on bad roads, they were sinking into the ground. This was a major enterprise to travel with an army. Same for the Germans to travel to Stalingrad in the Second World War was an unbelievable undertaking. And then, the supplies. So all I’m saying is, the railroad was a huge invention, also, for the U.S. because it allowed the opening of the Midwest and then off the West coast. And the steam engine and the inventions in agriculture, the tractor and so forth, and all the machinery. And that was followed by two of the most cruel wars. By the way, since Ms. Megan and Mr. Harry are such popular people in the U.S. I mean, we Europeans can’t understand this tam-tam around these two clowns. But I just want to say, World War I was fought between the three cousins, King George of England, … and Nicholas II in Russia…They were all cousins. And by the way, if you look up the pictures of Harry’s great grandfather, King George, and also of Sir Nicholas, they look exactly like Prince Harry. Incredible resemblance because of their German origin. Anyway, I think it was very nice to talk to you. We can follow up on this discussion on another occasion.

Meb: Love to. Marc, where do people go if they want to follow what you’re up to, your writings, your goings ons, what’s the best place?

Marc: They can go to the website gloomboomdoom.com.

Meb: Awesome, Marc. Thanks so much for joining us today.

Marc: Or they can go to you. To our interviews Faber and Faber.

Meb: That’s right. That’s a great name for a new podcast. Well, look, Marc. When you find the world reopening, come say hi in Los Angeles. If you ever find yourself here, I’ll buy you a dinner or beer, and I’ll do the same if I ever get over to your part of the world.

Marc: Okay, great. Thank you very much.

Meb: Podcast listeners, we’ll post show notes to today’s conversation at mebfaber.com/podcast. If you love the show, if you hate it, shoot us feedback at feedback@themebfabershow.com. We love to read the reviews. Please review us on iTunes and subscribe to the show anywhere good podcasts are found. Thanks for listening, friends. And good investing.

 

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