November 25, 2023 – For this Thanksgiving holiday weekend we are going to re-air one of our most popular interviews that we conducted on our premium weekday podcast with the well-known Swiss investor Marc Faber, author of the widely read Gloom Boom and Doom Report, where he provides his longer-term view on a large number of investment trends and themes, including the US stock market, bonds, the US dollar, precious metals, emerging market stocks, and much, much more. If you’d like to hear all of our interviews like this airing during the week with leading investors and strategists, click here to subscribe.
Timestamps:
00:00:11: Comparing Current Situations with the 1970s
00:00:51: Study on Roman History and Leadership
00:01:55: Analyzing Bad Leadership and Economic Situation
00:03:17: Nifty Fifties and Today
00:03:42: Discussion on Inflation and Interest Rates
00:06:55: Current Economic Situation and Recession
00:07:35: Impact of Higher Interest Rates for Longer Period
00:11:52: Talking about Performance of Stock Market
00:16:19: Outlook for Gold and Other Commodities
00:18:19: Anticipating Rising Interest Rates
00:19:27: Predicting Future Economic Environment
00:23:51: Expectations for Future Stock Market Performance
00:25:27: Consideration of Wider Economic Problems
00:27:03: Addressing Inflation Rates and Government Calculations
00:28:26: Discussion on Home Prices and Affordability
00:29:47: Cutting Pensions and Social Security
00:30:26: Exponential Growth in US Debt
00:30:47: Potential Future Downgrades in US Credit Rating
00:33:04: Short Term Deposit Rates and Stock Opportunities
00:35:04: Geopolitical Conditions and World War III Scenario
00:35:37: Prospects for Precious Metals
00:38:02: Potential Investment Playbook
00:40:32: Emergency Preparedness Measures
00:44:01: Geopolitical Considerations (Worsening) and Inflation
00:47:05: Domestic Social Conditions and Economic Outlook
00:51:16: Link to Follow Work and Newsletter
00:51:53: Closing Remarks and Contact Information
Transcript:
Cris Sheridan: Marc Faber, the editor and publisher of the widely read Gloom Boom and Doom Report. You can follow all of his work and sign up for his newsletter at www.gloomboomdoom.com. So, Marc, this weekend we're going to be doing a show specifically dedicated to discussing the striking number of parallels that we see between now and the 1970s. I just want to run through a quick number of these high inflation, rising interest rates, large budget deficits, rising debt levels, a cold war, but in the 1970s it was with the Soviet Union. Today it's now with China central banks adding to their gold reserves.
Cris Sheridan: And now war in the Middle East, along with a hostage crisis as well. Question to you is, in some ways, does this seem like deja vu?
Marc Faber: Well, no period in history is exactly the same as before. And of course, I'm interested in history, specifically economic history. So now I'm in the progress of studying the Roman history for the third or fourth time in my life to remind me a little bit how long the empire lasted in Rome and how many bad leaders they you know, nowadays many people are concerned about the bad leadership in the United States. Maybe for some people they admire Mr. Biden, but for the rest of the world he's looked upon as someone who is really a poor leader.
Marc Faber: But in Rome we already had at the beginning of the Empire in the form of Nero and of Caligula, some of the worst leaders. And yet the Empire continued to function reasonably well until about the mid of the fifth century and the Eastern Empire lost it until 1453. So the fact that we have poor leadership in the Western world and that they are similarities to the beginning of the 70s, we had a recession in 1970, a very brief recession from where the stock market recovered and made a new high in January 1973. This was the period of the so called growth stocks, or the so called Nifty 50. These were about 50 stocks, including Kodak, Polaroid, Xerox and so forth, stocks that performed fantastically well, whereas the rest of the market didn't do well.
Marc Faber: So we have parallels already there in the sense that the last episode of the bull market, say, after the COVID crisis of February March 2020, the rise has been concentrated among very few stocks and not the broad market. And then came the 73 74 bear market, which was like a Chinese torture. And there, I have to say, the current bear market in stock markets around the world and also in the US reminds me very much of what happened then because we had declines, then rallies again, and then declining trends and then rallies again. It was constantly interrupted, but investors always had the hope that it was over and that the bull market would return, and it never happened. So I think we may be in a similar period at the present, because we see continuously new buying into the market by investors who buy the dip.
Marc Faber: We haven't seen any panic yet. And then concerning inflation I have to say at the beginning of the 1970s in 1970 say the ten years treasury note was selling with a yield of 6% and then the yield rose to around 9% and then to twelve point 82% in July 74. But after 74 the yield then fell on the ten years treasury from 12% to less than 5% in 76 and then it rose again and hit a high of over 15% in September 1981. So what I want to say is that we had different waves of inflation and different waves of bond bear market. And in this respect, I have to say that in 1970, when the Ten Years Treasury was yielding 6%, I can assure you even the most bearish forecasters and this was the time of the original Dr Doom, who was at the time, Dr Henry Kaufman, who worked for Salomon Brothers.
Marc Faber: And then there was Dr Death Al Bochnilauer. He worked for the First Boston, which later on was absorbed by creditors. None of these bearish forecasts ever thought that ten years treasury notes would yield over 15%. Never. And everybody always thought the inflation cycle has peaked out, inflation is going to come down and this and that and it kept on accelerating although at irregular pace.
Marc Faber: And to this I want to say the reason inflation continued to accelerate is that although Arthur Burns who was at the time Fed chairman he increased interest rates meaningfully repeatedly but most of the time interest rates were negative in real terms. In other words, there's no point to increase interest rates to say on the Fed fund rate 5% if inflation in the system and we have to discuss what inflation is. But if price increases in the system are at six 7%, then to pressure inflation and to reduce inflation, you would need to increase interest rates to say 7%. And in this sense I think there are similarities to the 70s because the Fed and we can judge this also by the market action of asset assets at the present time, the Fed has increased interest rates as well as the ECB and other central banks. But money isn't tight, that I want to point out, because if money is tight, credit spreads widen very significantly to crisis level.
Marc Faber: This hasn't happened yet and the Volatility index would be at a very high level. This hasn't happened yet either. So my sense is that we are globally already in a recession but the recession is hidden by huge fiscal deficits. In other words the government borrows money and hands out money and this money then keeps the consumption at a relatively high level. But on the durable goods side, on luxuries, on production, industrial production is down essentially everywhere and I travel quite a lot.
Marc Faber: So I observe that the economies are not doing as well as they were doing in 2018 and 2019.
Cris Sheridan: You mentioned this important point about interest rates. Of course, we did see high interest rates in the 1970s. They got up to very high levels. I think many of us would argue that we won't see a return to the same levels that we saw in the 1970s, but we should expect higher for longer rates, which means what are the impacts of that, and how do investors navigate such an environment when you're seeing this higher for longer rate path?
Marc Faber: Yes, this is a very good question, and it's actually a very good observation, because for most people in the world, young people say the generation z, for them, mortgage rates at 8%. Hell, they've never seen this before in their lives because they haven't lived that long and they haven't read history. But if you go back to, say, the history of interest rates, which I have here by Sine Homer there he describes interest rates from, say, the fourth 5th millennial millennium before Jesus Christ to today. In other words, roughly 7000 years of interest rates history. Never in the world were interest rates as low as they were between, say, 2009 and 2020, when interest rates bottomed out.
Marc Faber: And the interest rates were artificially low because central banks manipulated them up to an artificially low level. So the rise in interest rates we had recently occurred from an artificially low level, and I admit it was a rapid interest rate increase. But in my opinion, as an economist and looking at the asset inflation we had after the colossal asset inflation in real estate we had between 2003 and 2007 after the great financial crisis, we had an asset inflation in everything, in collectibles and in stocks and in real estate. I mean, real estate prices have gone ballistic in Canada, Australia, and the US. And elsewhere, less so in emerging markets, but they have also gone up.
Marc Faber: And the interest rates were driven down by monetary policies by the central banks that essentially wanted to peg interest rates at a negative rate. This happened in the eurozone, not in the US. But we were at interest rates around zero, which was artificially low, and it led to a lot of poor investments. And it also created a huge speculative bubble in meme stocks and in unicorns and in SPACs, in everything under the sun and in cryptocurrencies and so forth. And now that interest rates go up, the equation changes.
Marc Faber: In general, for poor people, rising interest rates are bad because poor people usually borrow money to buy a house, or they have credit card debts, or they have consumer loans, or they borrow money to buy a car and so forth. The interest rates increase. For wealthy people and people like myself, I have savings and I have stock positions and so forth. For me, the increase in interest rates has been actually very beneficial because three years ago I got on a million dollars, say, less than 1%, not even half a percent, and now I'm getting 5% per annum. So 5% per annum for me is actually quite attractive in terms of return.
Marc Faber: And it lowers the value of investing in equities because at 5% per annum, in four years time I have 20%. I'm not sure stocks will go up 20% in the next four years.
Cris Sheridan: Yeah, well, like you were saying earlier, with the Nifty 50s parallel that we saw in the 1970s, that was a period of outperformance among those high growth stocks for the early part of the 1970s. I would argue that if you look at the performance of the stock market currently, that we saw that from 2020 with the major surge in the Magnificent Seven and the outperformance of those tech stocks now, they're under a bit of pressure. It does appear that we're seeing that play out again. And if that's the case, one would seem to think that we're probably in the beginning stage of this longer secular process that we saw from that late sixty s to early eighty s of a secular bear market. Is that a view that you would also hold to looking at this 1966 to 1982 parallel that's commonly cited?
Marc Faber: Yes. This period in economic history deserves some additional comments in the sense that the US. Stock market reached 1000 already, as you said, in 66, and by 82 we were still at the same level. In fact, in 82 at the low. I remember August 82, the market was briefly the Dow Jones below 800, whereas it had reached 1000 in 1966, and briefly it reached almost 1000 in 64.
Marc Faber: But anyway, 18 years after 64 is 82, and during that time, inflation adjusted, in other words, if you compare the performance of the stock market to the rate of inflation and just it for the inflation, inflation adjusted, the market was down by 70% in August 82. Now, since 19, the market in the US. Is also down in real terms, not by 70%, but they have started to go down in real terms. And most markets in the world have not performed as well as the US. They have underperformed the US.
Marc Faber: Both in Europe and especially in emerging markets. So we have this diverging performance already. Now, what happened in the 70s is interesting. At the beginning of the 70s, we had this bull market in the Nifty 50, which were the Polaroids and the Xeroxes of this world and Kodaks. But when the money flowed out of these stocks, it flowed into energy and gold shares.
Marc Faber: So gold went ballistic. Between 1970, it had traded until 1971 at $35 an ounce, and by 1980 touched briefly $850 on the spot market. I remember this period well because I had joined Drexel Burnham in 1978. First I was at Whitewell, and our office in Hong Kong was like a casino where people came in during the night to trade gold and silver and copper because we didn't have mobile phones in those days. So they came physically and there was a visitors gallery and they could then shout over the orders to the traders and so voice there for a while I was sort of running a casino.
Marc Faber: But the money then had shifted also into energy stocks. And by 1980, at the peak of the energy mania, energy stocks made up approximately 34% of SNP weight. Okay? So the money had gone out of the Nifty 50 into energy and gold shares and gold, physical gold and precious metals. And then there was a shift in 1982 where the US stock market began to go ballistic on the upside and bonds rallied because inflation came down thanks to the effort of the last great and excellent Federal Reserve Chairman Paul Falker.
Marc Faber: And gold and commodities went to sleep, including oil. And so for the next 20 years until year 99, that's the year when gold and oil came back and started the bull market we are still probably in at the present time. So what I want to say is we could sit here and say, okay, everything is lousy and hopeless and stocks will go down in the next few years. That may be true, but it may also be true that some stocks and some groups and some sectors and some markets around the world could go up while the main market, the US. Goes down.
Marc Faber: This happened, by the way, in the case of Japan. After 89, the Japanese market in 89 was 50% of global stock market capitalization. Afterwards Japan went down and other markets, notably the Nasdaq, went ballistic. I remember this very well because I was bearish about Japan and I thought if Japan goes down, it will drag down other markets as well. So I was wrong.
Marc Faber: But I was right about Japan.
Cris Sheridan: Marc, let's talk about what you're discussing when it comes to commodities. As you pointed out, we saw at the peak in the 80s, energy was around 30% or so of the weighting in the S and P 500. Today it's very low. As we all know, tech stocks comprise the lion's share of the returns in the SP and most indices. Do you think we're going to see a return?
Cris Sheridan: I mean, a lot of people have said that we're going to see a secular bull market in commodities. Again, one would argue that perhaps we saw that with the lows that we saw in 2020 with the COVID crash. A lot of commodities, including energy, got killed with the shutdown. That was a great buying opportunity. Do you think that trend is sustainable?
Cris Sheridan: Do you think we are going to be looking at a period of outperformance in precious metals and commodities, as we saw during the 70s for the years to come?
Marc Faber: Well, again, I have to point out some similarities, but also some different points about the current period and the 70s. In the 70s, when gold started to go up, it was because under President Nixon, I forgot it was August 18 or August 21, but I remember it because I predicted that the dollar would be devalued at the time. And gold went from $35 an ounce, which had been pegged in the mid 30s in 1933. So for essentially 40 years, the gold price had not moved up, and it was, by any standard, extremely undervalued. And so from $35, it was able to shoot up to $850 within ten years.
Marc Faber: And gold shares went ballistic. Today the gold price is a free market price. Some people will maintain that it's manipulated, but I don't believe so much in this manipulation. But it is a free market price, but it is no longer as cheap as it was in 1970. So yes, I think that gold will continue to go up.
Marc Faber: And I can give you the reasons, but I think the expectations should be moderate. It's not going to shoot up right away to $3,000 an ounce. It could under certain conditions, and because we have these bad governments, it's possible that it will happen. But one point I want to make that you touched upon about interest rates being high and so forth, I think interest rates will eventually be in the US. Much, and I repeat much above the 1980 level when Treasuries peaked out at 15.84%.
Marc Faber: In other words, I think that inflation in the Western world has the potential to exceed expectations and go up to the level that we have in Turkey or Argentina. Because the mess that the central banks and the governments have created in the Western world in terms of fiscal deficits and unfunded liabilities that the government has, will make it, in my view, necessary for money printing. I don't think the damage could be accepted politically from tight money over an extended period of time. I think the central banks will print money.
Cris Sheridan: Okay, so just to make sure I understood you correctly, you believe that interest rates in the US. Will go as high as they did in the 1970s?
Marc Faber: Higher. Okay.
Cris Sheridan: Now, with how much leverage there is in the system, I mean, you just look at the debt levels currently, interest expense exploding. I would argue that that would crush the US. Economy, the world's largest economy, and this would lead to a large scale problem for the rest of the world. When do you expect something like that to happen? Is this a near term risk or is this something that's going to unfold in a cyclical fashion over a period of years or decades?
Marc Faber: It will take a long time because I mentioned briefly the inflation cycle of the 70s. Actually, inflation started after 1942, specifically after the Second World War and then accelerated under Lyndon B. Johnson with his social programs in the also with his emphasis on the war in Vietnam, which created deficits, and then inflation, then peaked out in 1980. So we have a wave, an upward wave of more than 20 years in the inflation cycle. And then we had now disinflation cycle that lasted 1980 to say around 2020.
Marc Faber: So a 40 years downward wave in inflation in the world and these cycles are long. I mean we may peak out in interest rates tonight or tomorrow and have a decline in interest rates for a year or two and then a renewed rise that's occurred in the 70s. But you and I, we also think given the leverage in the economy, it's impossible that interest rates would go up to the levels I'm predicting or thinking about. But if you go to Turkey, you go to Argentina and you walk around Istanbul, you wouldn't notice any disruptions. I mean, everything functions and they have an inflation rate of around 100%.
Marc Faber: So we just had now in the United States the contracts, the wage negotiations between the Automobile Workers Union and the companies. And this call for increases in wages of somewhere of 25 to 30 40% over the next few years, say three years. With that you can then index sort of inflation into the system and as wages go up, inflation comes up, interest rates go up and then everybody complains and then he gets some more money from the government and subsidies and so forth and so on. It can be kind of inscripted into the economic cause that prices go up and there isn't a collapse. The collapse would happen if real interest rates went up dramatically.
Marc Faber: But this usually during inflationary period is precisely the problem. So we just had now in the United States the wage negotiations and this call for increases in wages of somewhere of 25 to 30 40% over the next few years, say three years. With that you can then index sort of inflation into the system and as wages go up, inflation comes up, interest rates go up and then everybody complains and then he gets some more money from the government and subsidies and so forth and so on. It can be kind of inscripted into the economic cause that prices go up and there isn't the collapse. The collapse would happen if real interest rates went up dramatically.
Marc Faber: But this usually during inflationary period is precisely the problem that real interest rates aren't that high. I mean if someone says to me money is tight, I point to him to some speculative stocks in the US that still have gone ballistic and to the huge speculation that is still existent in stocks and in currencies and so forth. So when inflation was around 6% in the years, treasury yield was over 9%. What is it now? Inflation is 86%, then the treasury yields are at around 5%.
Marc Faber: So for me money isn't tight. Now you may say Mike, your inflation figure is wrong, inflation is not 6% in the US. But on this subject I just want to say the Federal Reserve has a funny way to calculate inflation and I don't want to go into the details, but according to numerous observers and scholars and economists, the cost of living increases in the Western world, not only the US. But also Canada and Europe and Switzerland, the cost of living increases are much higher than what the government is publishing. And it should be clear that the government, as the biggest borrower of money in the world, has an interest to understate the true rate of cost of living increases.
Cris Sheridan: Well, Marc, you may have seen this, but just last month, the Nobel Prize winning economist Paul Krugman famously pointed out that there isn't any inflation if you strip nearly everything out that's going up.
Marc Faber: Yes, the Fed chairman in the 70s, when he saw inflation accelerate, he also reclassified the weighting of the basket of goods and services that go into the inflation figures. But one thing that nobody can dispute. Recently, there were two articles that appeared, one on Bloomberg and one in The Wall Street Journal, and they pointed out that it took someone today an average wage of $115,000 a year to buy a median price house, and that this was the highest ratio between the median priced house and the income that was required to buy an affordable house. Affordable is when you spend 30% of your income on your house on mortgages or rents. So what this figure shows is that over the last few years, home prices in the US.
Marc Faber: Have gone up much more than wages. And so the homes have become largely unaffordable. And you can look at housing starts in the US. And existing home sales. They're all way down.
Marc Faber: In other words, isn't it funny that in 1970, on a population of 203,000,000, the US. Had the same home sales as it has now on a population of close to 340,000,000? That is a testimony to real economic growth. The housing statistics are the least managed and fiddled statistics that the US. Publishes.
Marc Faber: Everything else is doctored, in my opinion. And you should know that governments lie and they keep on lying, and they keep on lying more. And why? Because the public will only vote for politicians that do not tell them the truth. The truth would be to tell the public, well, we have a big debt.
Marc Faber: We have to tighten our belt, we have to cut pensions, we have to cut Social Security, and we have to increase taxes. And how many votes would the politician get who would say that zero vote? Zero?
Cris Sheridan: Yeah, it'd be political suicide.
Marc Faber: Yes, it may be also physical suicide. Some weirdo comes and hits over your head.
Cris Sheridan: Again, I think a lot of this goes back to when we're talking about these longer term trends and the parallels between the 1970s and today with the amount of spending that we see currently, as you and many of our listeners well know. I mean, we're seeing just exponential growth in US debt. Spending is climbing around the globe. This is not just a us phenomenon but it's particularly acute here in the US as well. And with that it would sound like your outlook given to what you said earlier about expecting interest rates to climb higher than what we saw even during the 1970s.
Cris Sheridan: Of course it's not an imminent forecast you're giving, but one that would unfold over many years to come. If that's the case, we should expect probably further downgrades in US credit rating, the bond vigilantes, requiring greater compensation to lend to the US government, waves of inflation and that this is sort of the environment that it sounds like you expect, but again to unfold over years if not decades.
Marc Faber: Yes, I think that's the general trend that I would expect and before I said that I sort of like deposit rates at 5% per annum, but this is only for one year. I would be reluctant to buy as an investment, as a trade, it's a different story because the bond market in the US is grossly oversold. We are in the third year of a decline on long term bonds. It's never happened before. And I bring this up because the central banks always tell me oh, we stabilize markets.
Marc Faber: No, they don't stabilize markets, they disturb markets and create volatility, long term volatility that is unprecedented. Never before have long term bonds had the sort of decline we had recently. In 2017, Austria issued long term bonds, 100 year bonds at two point and these bonds almost doubled in value and now they've been cut down and are trading. They were issued at 100 and they went up to 150 or more and now they are at around 59. This is the volatility that central banks have created.
Marc Faber: You can also see it in Japan at the movement of interest rates in Japan and in the yen movement. Never happened before. This sort of yeah, yeah.
Cris Sheridan: So like you said, you think short term deposit rates know, around five and a half percent we could see a short term reprieve. Of course you think the trend is up long term but at this point that's a good rate to lock in. I did that, I bought my first six month US treasury bill at five and a half percent. You did say that there are certain markets that you think will do well in this environment. What areas would you be telling investors to focus on for a long term investment moving forward in this type of.
Marc Faber: I mean, I give you a very broad picture. I think the US dollar is in a topping out process. I mean we had dollar peak in October a year ago, then the dollar went down. But over the last six months the dollar has rallied quite substantially against other currencies but it's not at the high of October 2022. So I think we are in a topping out process for the dollar.
Marc Faber: I think emerging markets, if you measure them, their relative performance against developed markets and notably the US. Market. They are now at about the lowest level they have ever been against the US. Market. And so I would say that emerging markets are moving into a buying zone, especially Chinese related assets and Hong Kong assets.
Marc Faber: Nobody wants to touch them. This is a complete disaster area. And I'd say Latin American stocks are relatively inexpensive. And I would recommend investors to have some money in Latin America for the simple reason that Latin America is the only region in the world that will likely be spared or relatively spared by a Third World War. You understand?
Marc Faber: The Third World War is located somewhere between Eastern Europe and Russia and between Hawaii, Japan and then the Chinese southern coast. So Latin America would be a continent that is relatively immune. But I'm not sure the Third World War will happen. But I'm just saying we have to prepare for everything. And then I would say the one thing that did well, as I mentioned in the 70s, were precious metals.
Marc Faber: I don't think they will do as well now as in the 70s, but they will likely move up because, as I said, the governments will take the easier route, and the easier way is to print money. And so the money will keep on depreciating in real terms. In other words, there's a loss of purchasing power. Nobody in the US. Or in Europe can tell me that with the same dollar that he has today, then 20 years ago, he can buy the same quantity of a basket of goods, of food or a basket of real estate.
Marc Faber: There's no way. Everything has gone up relative to the dollar or to the Swiss franc or to the euro. So there has been a loss of purchasing power for all currencies in the world. Not one has gained purchasing power except gold has done relatively well compared to, say, wheat, corn, soybeans and industrial commodities. So if you really want big gains, you better buy wheat and corn and soybeans.
Marc Faber: Okay?
Cris Sheridan: So like you said, emerging markets are moving into a buying zone.
Marc Faber: I think so. I mean, I give you an example. Two years ago I told people and I wrote about it, that Turkey was very depressed because you understand what happens in a high inflation economy. The currency collapses, and as a result of the currency collapse, the stock market in real terms, inflation adjusted, becomes inexpensive. This is explained in a book that I want to recommend.
Marc Faber: It's the best book about the impact of inflation on everything, on society, on stocks, on foreign exchange, on the housing market, on wages, everything. It's called The Economics of Inflation by Bresciano Turoni. So he describes everything in a lot of details. This is the Bible people need to read about the impact of inflation on the system. It's a very interesting book.
Marc Faber: So two years ago I recommended people to buy Turkish stocks. I didn't have much confidence, but. I got so many emails from people from Turkey and said, Marc, you're crazy. Everything is bad in our country. I said, yes, but the market is very low.
Marc Faber: So in 2022, the Turkish ETF, the Turkish ETF traded in the US went up by more than 90%. And then a year ago, I was looking around the world again and I thought, the Iraqi stock market is very cheap. I didn't recommend it for a variety of reasons, but this year the Iraqi fund of a friend of mine is up more than 90%. So there are always some opportunities. At the present time, I think the stock market of Colombia in Latin America looks very interesting, and I also think that Pakistan looks interesting.
Marc Faber: Again, you will tell me what is good about these two countries? Everything is bad. Everything is bad. But that's why stocks are cheap. Or Hong Kong.
Marc Faber: A lot of things are bad, but not as bad as the market participants and the foreign investors seem to think. So I feel reasonably comfortable in emerging markets, not 100%, because the emerging markets are cheap compared to the US. But they're not as low as they were in 2003 and not as low as they were in 2009, but they are, relative to the US, very inexpensive.
Cris Sheridan: And again, as you said, if we are moving into more of a World War Three like scenario, if the geopolitical situation deteriorates further, then Latin America, you think, would be a little bit more of a safe haven in that emerging market universe.
Marc Faber: Yeah, I have to say, sometimes these areas where you think it's going to be safe are heavily exposed because before the Second World War, you could have argued, well, Papua New Guinea is relatively safe, and then it was a theater of war. And so we have to be very careful where we move in the case of war. But on this subject, I want to point out two things that we've also now seen with the invasion of Gaza. In case of war, the first thing people will do, I mean armies will do, is switch off the electricity and the communication networks. So if you have gold in a Swiss bank, it may not be very useful.
Marc Faber: You need to have gold physically where you live in small coins. Because if you go to a tobacco shop and you want to buy a cigarette with a kilo of gold, they won't have to change to give you, you understand? You need small coins in the denomination of 1 gram, 2 grams, maybe 10 grams, and so forth. And number two, I don't think that credit cards and bitcoins and cryptocurrencies in a true emergency are difficult to get by because there's no Internet connection, no phone connection. And three, I think if you want to be in a safe place, you should go to a small village somewhere and have a house not near a bridge, because bridges are very vulnerable in the case of tank attacks.
Marc Faber: But you want to be near water, a source of water, like a river. And if you move to a very small village in Europe or wherever it is in the world, don't move there as a billionaire with your helicopter and with your white Rolls Royce and seven mistresses. You need to move there as a retiree, but don't show your wealth. That is the worst mistake anyone can do in an emergency case, to show wealth to his neighbors. That will be taken away right away, as occurred in Zimbabwe and all over Africa repeatedly and in Communist.
Cris Sheridan: You know, it's interesting. I was going to ask you my question about cryptocurrencies because we've had a number of comments made by some guests where they've said that basically in the era of fiat money printing, gold was the most reliable hedge against that. In the era of central bank digital currencies, that the most reliable hedge is cryptocurrencies. But it sounds like you're not putting too much emphasis on crypto as an investment.
Marc Faber: Well, I mean, I have used cryptos as a trading vehicle, but quite frankly, the flawed argument about cryptocurrencies is one cryptocurrency I can accept. But you understand, every country has started its own cryptocurrencies and there are hundreds and thousands of cryptocurrencies floating around. Most are actually fraudulent, but I can believe that bitcoin will survive. The problem with bitcoin is that if you and I invent a supercomputer, we can maybe produce a lot of bitcoins. And number two, I feel safer with having physical gold in my possession than anything that is electronic, because there's a lot of fraud electronically.
Marc Faber: Most of it is not going to be reported, but there's a lot of fraud. But I can understand someone who argues that bitcoins are desirable. I do not wish to argue against that. I just like to point out that there are some issues in emergency situations that people need to consider. And one is the access to electricity and to communication.
Marc Faber: I've been at hotels and the hotel clerk, when I wanted to check out, tells me, oh, our system is down. Well, I have to go to an airplane and catch an airplane. How long do I have to wait until they reboot their systems? You understand there are books about complex societies. Rome became a complex society.
Marc Faber: Complex societies function very well until they don't function. When they break down, everything breaks down. And this is the problem today. That's why I say you should have a house somewhere in the countryside, remote, because there you will always have food and you have water. If you're in New York City, you know how complex the distribution system of the US is with respect to food.
Marc Faber: The food has to be shipped into the cities in refrigerated boxes and so forth, the rail cars, then it has to be unloaded and then shipped to the stores. And then a lot of things can go wrong already. Now, without the war, there are continuous blackouts and so forth.
Cris Sheridan: Yeah, that's been a theme that we've been discussing, and we expect that to continue, of course, because there's just not enough necessary investments into the power grid.
Marc Faber: Into infrastructure in general. Everything gets stolen away by the politicians.
Cris Sheridan: Well, Marc, as we get to the close of today's interview, I want to first summarize some of the key points that you've made so far with us. You do believe that this period we are in currently has a number of striking parallels with the 1970s, which means, as we look forward in the years ahead, perhaps for the remainder of this decade, the broad US. Stock market may see a similar pattern to what we saw during 1966 to 1982, with a large volatile trading range, accompanied by multiple waves of inflation and spikes in interest rates. So if this is indeed how things play out, making money will be more challenging. However, you do like short term treasuries at present, which are yielding anywhere from five to five and a half percent, and do see more upside for commodities in the years ahead, particularly precious metals.
Cris Sheridan: Even though you don't think we'll see the level of outperformance as we did during the 1970s. You also listed a number of emerging markets that are oversold and pointed to India as a potential bright spot, economically speaking. So those are just a few of the key points I wrote down in today's interview. So with that said, any final comments you'd like to leave with our audience today?
Marc Faber: I think the geopolitical situation has worsened. It may be used to print more money, and two, it will probably lead to a price level that is higher than was expected earlier on. And I think that the domestic social conditions have deteriorated a lot. There's a lot of animosity between different interest groups and ethnic groups that will not be very conducive to economic growth in the world. And three, we had an economy over the last 20 years that was largely driven by the growth of China.
Marc Faber: China's economy is probably not as bad as the Western media portrays it, but that China will grow at more than 4% per annum long term is a pipe dream because the population is beginning to decline. And these are not my forecasts, but forecasts by various universities and the UN and so forth and so on. They think that China will have a population that will shrink by close to 50% over the next 50 years. I can assure you a shrinking population is negative for economic growth. It may be favorable for real wage growth, for personal income gains, but not for macroeconomic growth.
Marc Faber: So I think that the outlook for economic growth in the world. There's one exception. It could be India. But in general, I think the outlook for economic growth is actually very poor. And we had, as a final observation, strong economic growth in the US.
Marc Faber: Between, say, 1870 and 1900. And the historians, mostly the socialists who are at universities, they describe this the area of rover barons and so forth. But the fact is that real wages increased during that time. A lot economic growth was very strong and exceeded any period of economic growth in the 20th century. The 19th century in America was blessed for two reasons there were no economists in America at the time.
Marc Faber: The economists were all in Europe, and there was no central bank after. The 20th century is littered with economists who were mostly in America, not in Europe, mostly in America. Interventionists, they wanted to intervene in the economy. In other words, Keynesian economic policies manipulate markets to produce growth, and that led to actually lower growth than in the 19th century. This has to be clearly understood.
Marc Faber: And the robber barons, they brought enormous prosperities. They brought wages in America that were much higher than in Europe, whereas in 1800, wages in Europe had been higher than America. But I'm just saying that the history books that are mostly written by socialists, they distort history. Grossly I'm not saying that Rockefeller and Carnegie and so forth were nice people, but they were actually beneficial for everybody. This is the capitalistic system.
Marc Faber: No matter how many disadvantages the capitalistic system has, at least it's a system that doesn't enrich a few at the expense of the others. It enriches everybody, admittedly, with wealth inequalities and income inequalities. But if you want to make everybody equal, you have less freedom than if you accept a certain wealth or inequality in the capitalistic system. This is my final word.
Cris Sheridan: All right, well, I know that you write about these things extensively and, of course, cover a number of the subjects that we did discuss today, including investment implications of your outlook. So as we close, what would be the best way for our listeners to follow more of your work and to sign up for your newsletter?
Marc Faber: Our website called Gloomboomdoom.com. It's all in one word again, gloomboomdoom.com. And thank you very much to your listeners and viewers for your patience.
Cris Sheridan: Well, Marc, a pleasure to speak with you on our show, and thank you for the generosity of your time. We definitely look forward to speaking with you in the future.
Marc Faber: Thank you very much.
Cris Sheridan: If you have any questions or feedback on what we discussed today, or if you'd like to get in touch with us at Financial Sense Wealth Management, feel free to check out our new website, financialsensewealth.com, or you can give us a call at 888.486.3939.
