Ep774: Marc Faber – The Value of True Diversification

Andrew Stotz 00:01
Hello fellow risk takers and welcome to my worst investment ever stories of loss to keep you winning. In our community. We know that to win in investing, you must take risk but to win big, you've got to reduce it. Ladies and gentlemen, I'm on a mission to help 1 million people reduce risk in their lives. And I want to well welcome my listeners in Chiang Mai today, Chiang Mai, Thailand. Fellow risk takers this is your worst podcast host Andrew Stotz, from a Stotz Academy, and I'm here with featured guests, Dr. Marc Faber. Marc, are you a join the mission?

Marc Faber 00:39
Yes, I'm ready. And thank you for having me on your program. I can tell you about many losses in my life.

Andrew Stotz 00:48
Yeah, I think we're gonna have, we're gonna have some fun, I just want to introduce you briefly to the market. You know, I'm gonna start my introduction of you by going back to 1992, I moved to Thailand, and I was teaching finance in those days at a university. And I saw I realized I wasn't gonna make any money from doing that. So I decided I saw an ad out in the newspaper for an analyst at a broker. And I went and I applied and there was a guy there in 1993, I went to interview with him. And he basically said, you're qualified enough. You've got a undergrad in finance, and you got an MBA, you've been teaching finance for a year, come on in and start working next week, or whatever, next month. So I quit my job as a teacher. And I went to work for a man named John Shrimpton. And it was a, what a great move, because John Wood has been really a great mentor and a friend for many, many decades. But John was a big fan of yours. And that's when I first came to know about the gloom, boom, and doom reports. And about you. I never, we never had any big connections. But there is one other thing I want to talk about about you that I remember, when I was vice president of CFA society, Thailand, we asked you to come down and speak to the society. And you had a great presentation that you made. But what was remarkable, and I think you blew everybody away was the first 20 minutes of that presentation, you gave it all in Thai language, which I was thoroughly impressed with. So I know you're living in Chiang Mai and have, you know, built quite a life in quite a global, you know, perspective. But I just want to welcome you on the show, and also ask you, what is the unique value that you have been bringing to this wonderful world?

Marc Faber 02:39
Using the word value I brought? Yeah, like what is unique, financial people bring much value. Because originally, bankers and investment bankers, and so forth, they channeled capital from savers, from people that had money to people who are looking for money to build a business. And this function still exists. But it's a very small function, relative to the kind of gambling function that the financial market has become. And do people just buying momentum, whatever goes up, they buy and then when it goes down, they sell and so forth, without much knowledge or regard to the fundamentals. So we could say that the world has become fine financialized. In other words, if we look at the last 40 years, or so, in my case, more than 50 years, because I started to work in 1970, in 1970, or between 70 and 1980, in the US, stock market capitalization, as a percent of the economy as a percent of GDP was about 25%. It fluctuated between 20% and about 30%, let's say on average 25%. Now we add something like 150%. So the financial markets have expanded much more rapidly than the economy and we also have debts that have grown much more than the economy and the quantity of money and divorce and so on. So everything has been financialized. And as a result of that, we also have to be aware that the purchasing power of money has gone down. I mean, what you could buy for $1 in 1970. Now, the quantity you could buy for $1 is much smaller. In other words, everything is much more expensive. Everything has gone up stocks, bonds, commodities, especially gold and silver and divorce, and then also the prices in shops. So rising creases are a symptom of what we call inflation and inflation, the proper definition is an increase in the quantity of money, basically. And then you can observe sometimes this price goes up, and sometimes that price goes up. So it changes frequently. But in general, I'd say we have a huge bubble in financial assets, which in my opinion, is in the process of being deflated. In some cases, it's been deflated a lot already. In other clay cases, we're still at the top of the bubble, like in farm and farm related stocks in American semiconductor sensors. In AI, it's stuck. Everybody changes every six months or one year. So the marriage shifts from one corner of the room of the world do another one.

Andrew Stotz 06:18
It's interesting, because you mentioned about market cap to GDP. And I looked, I'm just looking at the number for the world. And it's about one 30%. And that's after a huge amount of debt, pumping up GDP.

Marc Faber 06:34
Yes, absolutely. I mean, it will add it that an equity market capitalization would be at over 200, or 250%, something like this. So it's a gigantic kind of financial bubble on top of the real economy. And the real economy no longer really moves the financial markets, it's not the financial markets that move the economy. I mean, if there is a collapse in asset prices across the board, we have now won in commercial real estate in America, a lot of commercial properties sell for less than half of what they were value that five years ago, or eight years ago. But that is offset by, say, the residential market, where property prices have essentially continued to go up until very recently, and selectively some are down from the big. But still, we talked about the housing bubble in 2006 2007. And on top of that housing bubble is superimposed another huge bubble because of artificially low interest rates. So it's a funny situation in the world. And I think, in general, some people will make a lot of money, but overall, people will not make much money in financial assets in the next five to 10 years. Right.

Andrew Stotz 08:10
And I think it's good to talk in long term just because you've got such a great history, you know, and understanding of history as curious because I know you've got, you know, your I know of your deep knowledge of Hong Kong of Asia, what's going on in China? Also, you've got some good knowledge of Latin America, you understand the US and you definitely understand Europe. I'm just curious, where is your idea about where these regions go over the next five or 10 years? You know, right now, in the short term, it seems like Germany's just destroying its, you know, its manufacturing, I look at the policies of the European bureaucrats. And I just think it's just going to slow down the economy. But also, Europe is very cheap. You know, from a trading perspective, I look at what's going on in America, and it's a little bit scary. Asia looks interesting, but you know, hard to perform with the US. I mean, it's hard to think about these bigger picture markets. But how would you? What would you say about those different regions relative to each other over the next, I don't know, five years or 10 years? Well,

Marc Faber 09:20
if we compare, say, the performance of emerging markets with the US, say, relative to the s&p, or you compare Europe relative to the s&p, or Latin America relative to the s&p, then everything is cheap with the s&p. And if we believe in some sort of reversion to the mean, we would assume that at some point, emerging markets Latin America, commodities, and also European stocks will The outperform the US. But that's just like to point out, in theory you can have outperformance in the sense that the US market which is concentrated in, say 10 Different companies, they have a very hard high market weight within the s&p, the Googles of this world and the Navy, the US and so relative could mean that the US market drops 50%. And the other markets only dropped 10% or 20%. But do you understand if you're 100%, stock investor 20% is a lot to lose. If you have 100 million, you lose 20% is 20 million is a lot of money. So my view is that investors should always be diversified, and hope that not all assets collapse at the same time. But in today's inflated world, I mean, if you look at the world in 1980 82, when stocks were low, and bonds were had huge yields. Now, we had essentially the opposite. Stocks were high, and yields on bonds were very low, the years 1981 82 to say 2021 were wonderful years for every asset, whether it's a Swiss watch, a Patek Phillipe, Rolex, or white wines or red wines, collectibles, art, etc. And stocks. And the future may not be like that, I think we may have just hit a low point in inflation and interest rates. And from here onwards, in other words, the low was in May, August 2020. From there onwards, the trend will be to its rising rates of inflation, and a rise in interest rates interrupted by significant corrections. I mean, you look at 1970 and 98. In between, there were huge bond market rallies, but all within a long term bear market.

Andrew Stotz 12:34
Another question? Okay. So thinking about global regions, you know, us has been, you know, pumped up pretty high relative to all others. So your point is that, you know, if the US falls, maybe these regions will fall less so diversification would pay to some extent, if you're only looking at stocks. The other question I had about is just about Asia for a minute. You have such a deep understanding of Hong Kong. And I just wonder, is it? Is it over for Hong Kong? I mean, is it over for China? I mean, look at where these markets are, particularly the Chinese market. I'm just curious. Do you think that the US has the tools to keep China down? Maybe Is that what's happening? And just curious about your perspective on China and Hong Kong?

Marc Faber 13:27
You mentioned, I have a deep understanding, I really don't think that this is the appropriate term. I may be an one ICT observer and other people are blind, you understand. But is nowadays to understand anything in the asset markets is very complex, because the say in 1970, we paid attention to the money supply in the United States, and to the US economy and Europe was on the periphery. And China and Indians was didn't exist in investors horizons. Nowadays, you have to pay attention to domestic political events. You have to pay attention to geopolitics, to trends in warfare, and so forth and so on. And to fiscal spending by countries and to the quantity of money and so forth, and bailouts and interventions. So there are so many factors having an impact on asset markets, that it's very difficult to understand the conditions perfectly well, then that includes me, but I'd like to say this. I was known in Hong Kong as a super bear. And in 1997, I published a small book called The Rise Since the fall of cities, because throughout history, we have observed that some cities began with a from nothing and became prosperous, like an powerful like Rome. And then they vanished. Rome didn't vanish from the face of the earth. But it's politically no longer important. It's still a religious center, but say its importance to the world is gone. Where say you take China, in 1970, China consumed about 2% of industrial commodities around the world. Now it's up to around 50%, some more than 50% and some a little bit less. But it is a major change in the economic center of gravity, a shift away from the industrial, developed civilized Western nations, I'm saying civilized because that's their view. Other people have different views. And is this shifting the balance of economic power from west to more the East China, and in future also India, but then you look at countries like Indonesia, that were population of 250 million, maybe they don't have a strong armed forces, but potentially they could become, you know, more assertive. And you have Bangladesh and Pakistan, and Brazil, these are all countries with a population of around 200 million. So it's a very different world. And I'd say I was bearish about Hong Kong properties, because each time a city's absorbed into a big empire, like say, Salzburg and Augsburg, they were absorbed into the Austrian Hungarian empire, Roman. Gasser again by anyway, once they become absorbed Venice as well, they lose their importance, their international of Danone, and so forth. And Hong Kong is becoming part of China. Having said that, the Hong Kong property stocks are all down except 70 80% from the page. And if you look at the price to book of Hong Kong shares, and also in Singapore, some property developers, they sell, I'd say 25% of book value. Now the book value in Hong Kong may go down for sure the property price, they will still adjust on the downside. But the transition from being an international city to being an or the most important city, within the Greater Bay area, in the south one Dong province, and Shan Shan, and so forth. And so what, Macau that's the region with 80 million people. So to be an important city, in a country with 80 million people, it's not so bad. And I mean, as you know, since you've been an analyst, analysts have stock brokerage firms, they recommend to buy near market highs or near a sectors high. And when everything goes wrong, they recommend to sell. And so now you have an overwhelming number of analysts. And of course, the ignorant Western and American journalists, they are the most useless people in the world. I always consider myself having been a broker to be a useless character. But when I look at the media people that is I mean, that the high point of uselessness, and they are all negative about China. Anything China does anything Hong Kong does is always negative, not taking into account that the securities laws were introduced, largely because of the demonstrations in Hong Kong, which were organized by the American State Department, the CIA and so forth and so on, and paid for and supplied with uniforms, and all kinds of equipment to create an embarrassment for China. That was the ambition and the Chinese reacted blah If anyone else would react, they kind of got rid of this artificial in quotation marks NGOs that are nothing else but an extension of the arm of the CIA and the American State Department.

Andrew Stotz 20:17
Yeah, it's, that's something that I would

Marc Faber 20:18
say. I've been buying property stocks in Hong Kong lately. Because unlike western property companies, which are usually quite leveraged, in other words, they have large debts. In Hong Kong, the Hong Kong families are so rich that they never needed to borrow any money and they made so much money. So you look at say Robert earns sino land no borrowings and even Hong Kong Land is a subsidiary of Jardine, Matheson Mathison doesn't have a lot of borrowings, so I described who doesn't have a lot of borrowings either. So overall, the good financial conditions of Hong Kong property companies is actually quite good.

Andrew Stotz 21:13
That's interesting. I guess one other region that I would love to hear your opinion on is, what's the future for Europe.

Marc Faber 21:22
I've just written about the economic suicide. The green communists and socialists have brought upon Germany, it's madness. But again, and I don't want to sound like a conspiracy theorist. But again, I think there's a lot of American influence in having sort of forced Germany to buy energy from the US instead of Russia. And the dumb socialists, the reason they actually socialist is that they don't understand anything about economics. Because if they understood economics, they wouldn't be socialist. But in their ignorance and arrogance, they fell into the trap. And they, as a result of that, they increased the cost of production in Germany dramatically. And if you listen to all kinds of pronouncements, by business leaders in Germany, say the big industrial groups, they all say, it's no longer profitable to produce in Germany, then in the whole of Europe, they have this madness to go after the farmers. When you think of it, they import food, they can't survive without imported food, but the little food production that they could still have, they're in the process of destroying it. It's an unbelievable site. And the worst part of all this, at the same time, they are increasing taxation. So you have kind of a recipe, how to destroy an economy. This will be a textbook case, in economic history, how to green socialist communist and the other socialist, the left leaning media, the left leaning government officials that are completely ignorant. You listen to speeches, I mean, it's the same in America, Kamala Harris, you listen to bear Park, all these people a term in New Zealand before they are flew less clueless, no idea about anything. And they go and tell the world or Well, this is like this. Bear box travels and trust the former foreign minister of Britain, and later she was prime minister for a little while. She went to India to teach the Indians how to behave. You know, this is a different world. It's not the 19th century when the British could send some soldiers to China and beat the hell out of them and then expropriate

Andrew Stotz 24:20
times of change? Well, I just wonder, you know, it's now pretty clear that the leaders of Europe are just stupid and dumb. But the question is,

Marc Faber 24:29
it was clear right from the start? Yeah.

Andrew Stotz 24:32
You're you. I was just watching the US leaders. So I could make that conclusion from the start there. But the question is, how did Europeans, the average Joe, in Europe, get so stupid to elect stupid leaders?

Marc Faber 24:52
How did the Canadians elect one of the greatest idiots in history? This is just In Trudeau. I don't know. I mean, the problem is that the leaders will be gone. But the people that wrote for them are still there. All my Canadian friends and of many Canadian friends, they have nothing good to say about Trudeau. But although they all complain about him, he got elected.

Andrew Stotz 25:27
I interviewed on Episode 716, Joe Johann Norberg, who wrote the capitalist manifesto. And the conclusion of my discussion with him for me was that we have to fight to get capitalism back. And I'm just, you know, it's just watching what's happening. I mean, 20 3040 years ago, nobody would could have imagined that you'd have to fight to get people to pay attention to capitalism. They were trying to get out of, you know, communism, so desperately, whether it's the you know, the, the Soviet states, or, you know, Eastern Germany, or, or even China, getting out of communist policies was the whole goal. And now we've got to fight again, to get capitalism to bring us out, because the next big thing that's happening and it's big in Thailand is the EF ESG. The same type of people that are running the political things are pushing the ESG agenda so hard on companies now. And now you're watching companies with returns falling. And, you know, it's, it's an interesting thing of what's happening now, particularly in Thailand, we've got a market that's been down, you know, for a long time. The other thing I was doing a podcast with another person, we were talking about education over the last 30 years. And I said, you really can't bring down education standards for 30 years and not expect there's some consequence. And at least in the US, that's what's happened.

Marc Faber 27:07
Especially if the lowest levels of education are in high political office. What do you see, for me, is actually not very surprising, because if you the economic world today, is an economic world that is heavily influenced by political thinking. And you very seldom see in economic discussions, people like Ludwig von Mises quoted or Hayek or Schumpeter Schumpeter is one of the really big, important economists of the 19th century, a belt. He wrote the history of economic cycles, business cycles. And his standard work, which is, has been a best seller for many, many years, when it was published, is capitalism, socialism and democracy. That's the book. Can you see? Yep. Okay. And in there, he explains how capitalism develops and the advantages of capitalism and so forth. He doesn't say that it's the optimal system. Not at all he says, it's basically an unfair system, in the sense that some horses run faster than others and win the race and become rich, and others fail. But he also points out in his book, how capitalism inevitably, will lead to socialism, partly because of academics, the academics, they must hate the guy who starts with nothing, you know, he has no education and become successful, whether as a butcher or as a carpenter, or as a builder or just will build wealth. And we have many examples of people that never went to Harvard and Ivy League universities, and they all became successful. Larry Ellison is a case that springs to my mind. And then he also explains how capitalism slides into socialism, because of envy of some people, the academics as an example that I just mentioned, and also because the rich capitalists eventually have a lot of influence. And they to some extent, that like socialist now, that he did not run Right, but my interpretation of today's the rich capitalists, they love the government to spend money. You know, in America, let's assume you and I, we are wealthy businessmen, we love the government to take money and print money, and to throw it at each American, illegals, and so forth and so on. Because these people will come and shop in OUR Walmart at the back and be on Amazon, and be on Facebook. And then you understand. So we pay tax, but we pay a small percentage of tax, we get the government to have deficits and to spend freely. And then the government recipients of government funds, subsidies and servers, they come and spend in our businesses. So among the rich people actually nowadays, this is also the case in Germany. I always think, how could German industrialist X accept this incompetent government officials, these bureaucrats, there is no mystery to me. But this is one reason. And in this book that I just showed the capitalism, socialism and democracy, Schumpeter, that he gave a speech in 1949, at the New York Economic Club, and he spoke precisely about this, unfortunately, died three months later, he had a heart attack or something. But it's a very interesting book to read, to understand how we could slide into socialism. And the socialist idea is not about creating higher standards of living for everybody. The socialist ideology is an ideology of destruction. I repeat destruction. That's what Karl Marx essentially wanted to destroy private ownership. He wanted the state to own things and the state to allocate. And what is the most beautiful eight instruments to do that is to have a central bank, because the central bank allows people, the government to spend endlessly. They finance it. The consequences come one day, at the latest stage, I think it's arrived in the sense that interest rates have shocked up from an artificially level to still a reasonably low level, given the high rate of inflation we have at the present time. But it's very interesting. I mean, there is no system that is perfect. I think the most imperfect system is to have government officials that when they make mistakes, they're not held accountable for the mistakes. The lock downs were clearly a mistake. The vaccines were clearly a mistake. Because we have access this statistics at the present time everywhere. But the government officials who locked up people, there are no crew of what they were doing. Scientifically. They're like great a turn. But there's a lesson to the experts. We don't know anything. Yes. So, I mean, this is the tragedy of today's world, it was much easier to assassinate the Roman emperor, or to cut off the heads of a French royal. Nowadays, the bureaucracy, nobody is responsible for anything. So people make huge mistakes. And the result is you shoot them upstairs.

Andrew Stotz 34:25
Well, I after that great intro of your views on things, which I generally agree with. Now it's time to share your worst investment ever. And since no one goes into their worst investment thinking it will be. Tell us about the circumstances leading up to it and tell us your story.

Marc Faber 34:46
Well, I've been the first and not necessarily in the money, but in terms of percentages that always turned out to be 01 To lend money to friends, that is the worst investment you can make. If you have a friend in trouble, the best is to give him $1,000 or $5,000 or $100. And say, look, I tried to help you to sort out your problems. But money, I cannot lend because I'm not the bank, you have to go to the bank. And he comes to you, because he can't get the money from the bank, or he has already loans from the bank. So if the problems then become severe, he will pay back the bank first, and not the friend. So as a friend lending money to other friends, you lose everything, you lose your money, and you lose the friend. Maybe the loser friends is the least painful. But nonetheless, it's an annoying thing. So I have given up lending money to friends, I just give some if I can help a second world's worst investment was. And you may notice, and I admit this to anyone in the late 1990s, I became convinced that the technology stocks the.com bubble would be bursting. But you understand. Sometimes the stocks go on, on the upside or the downside, much more than we ever sold. So in 99, the NASDAQ doubled within just a few months. And then at the turn of the year 99 2000. GREENSPAN injected liquidity into the system because they were all talking about the millennium and so forth. and the NASDAQ then went up another 30%, between January 1, and March 21, when it peaked out. So it was a vertical REITs. And I was sure, heavily short in those days, but I covered around the end of 99. Although it would have been a mistake long term, but you understand if you're heavily short, and it goes up 30% In three months, you may be bankrupt before you write. So that was money wise, the greatest loss. I'm always afraid that the next bubble when it burst or the current bubble when it bursts, and financial assets go down, that this will be the greatest loss in my life. So I'm diversified. But even diversification I don't feel very comfortable. Because among the Diversified assets, I hold cash deposits with banks. Well, they could fail, the dollar could collapse or other currencies could collapse. I'm new, you've seen it all in 97. How fast currencies collapse. And I remember in 9798, during the Asian crisis, some of my very wealthy friends because the stock market capitalization of the companies collapsed and managed the stock price collapsed currency collapse. Briefly, they went from say $3 billion net worth to minus zero to minus and then he's recovered, but I'm just saying when things go bad, they can really go bad very pronounced Lee. Yeah. At that time, I lost a lot of money. But I thought it was a good lesson because I had always sort of believe a team Janus was a good friend of mine, famous short seller in America. And we were still friends. But my view was the would be more companies going out of business than survivors. What we thought I certainly overlooked somewhat is that you could be short 10 stocks and nine go down say 100 percentage they'll nine go bankrupt, but the one that survives like Amazon, because Google didn't exist yet in 99 to sell but Amazon did that book. They go up say 100 times you understand so the to make money on the short side is difficult in my view. Anyway, after that experience, I said to myself Maybe I've been too bearish, the Fed prints money. And Greenspan he cut interest rates after 2001 significantly, and kept them artificially low, given the housing bubble that develops, developed, but I didn't want to show it anymore because of the money printing. And so I went long Asian stocks. And they did very well until 2008 2009. The office, they didn't do well. But I have to say, my Thai portfolio, which I have, because I live in Thailand. And also, I've heard all my life that stocks always perform better than other things. So I thought I will test it to see mathematically Is it true. And I have a portfolio of Thai stocks fairly substantial. Because I think we may move into a situation where you cannot remit money from country A to B, so I want to have money in Thailand. The portfolio has done, okay. It hasn't lost older the market is down. But it hasn't lost money over the years because of the high dividend yield I have on that portfolio. But as you know, since you live in Thailand, a lot of companies now have been cutting dividends. And if I look at the whole situation in Thailand, I don't think that stocks are all that cheap. Some are improving, but some are deteriorating. So the market is not as cheap as it was in 2009, or 2003.

Andrew Stotz 42:01
Yeah, so much has changed in the Thai market now. And again, I go back a little bit to the ESG. And the pressures that these companies are under, let me ask you a question. If you were to, let's imagine that a young person nowadays, doing something like you were doing back in those days around 2000, you know, and before that, or thinking about yourself, what would be your recommendation for them to not make that same mistake of being overly bearish? What would be the thing that you either could have done or you would advise someone to do when they get excited about a negative story, and they think it's going to come?

Marc Faber 42:44
I think the reason I advocate diversification in essentially stocks, bonds, and cash, precious metals and real estate is that it will be unusual that everything collapses everywhere. By diversification. I don't mean that you would have a bank account with a Swiss bank. And you would own some American shares and Canadian stocks and some European equities and Asian equities. I mean, diversification, you would own some property, say in America, or Europe, but also some properties maybe in China, or Hong Kong, or Singapore, or Thailand or Indonesia, or Latin America, and some assets held with a custodian in these countries. In other words, you would have an account with a Swiss bank and who is a bank in London, and maybe a bank in Thailand and maybe a bank in Singapore, Hong Kong and so forth. You understand that is a true diversification. Not that all your money is under the jurisdiction of the American imperial power or Neo imperial power, because that it may one day be taken away from you, or you may not have the permission to remit it outside the US. So you understand diversification everybody has to think very clearly what it means for him. Yeah, I think I will advise a number two. As you know, in America, fidelity is a very large fund management company, and then our fidelity doubt many funds, say around 60 or 80 Farms. Some are biology, some are chemistry some are engineering companies, energy companies, gold mining numbers and then they will program you can switch between the funds free of charge for an overall charge annually. And statistically, you can then measure individuals observe in the world, how successful are they at switching volumes and outperforming the market. Now there is a company in America dowel bar, they measured the performance of individuals compared to the index. The individual performance is a catastrophe is like 2% per annum. And I tell you, I personally believe if the day I became worker, in other words, when I finished my studies, I was 2524, I started to work with 2425. If from that day onwards, I'd put all my money that I earn, always on deposit, I would have at rising interest rates until 1981, then they're falling interest rates, but high returns and the compounding effect of that would have beaten most investments. And I tell people always look, you don't know what to do with your money by yourself or property they catch, because then you're not going to do something much more stupid with people. If a good salesman drops into the door of someone, and they someone is a cautious person, but he sees his neighbor making money in bitcoins, or in EBTs, duck or whatnot. The salesman will make the sale and tell him you see know your neighbor is a smart guy. He bought the beat Yeah.

Andrew Stotz 47:01
Yeah, there's a lot of sales going on. I want to in wrapping up, I just want to get your recommendation I was looking at. First of all, I was looking at capitalism, socialism and democracy. And I got that down. I listened to you talk on another podcast, where you talked about another book about inflation, he was called the economics of inflation. Correct? And so I'm gonna include that in the show notes. Is there any other book that you'd recommend?

Marc Faber 47:34
That is the economics of inflation. Breaks Yanaka Roni, Naga

Andrew Stotz 47:42
that. Yep. Class, then

Marc Faber 47:48
I say, I mean, this is my recommendation, because a lot of people always ask, we don't know so much about economics. But I think an outstanding book is Capitalism and Freedom by Milton Friedman. And also you go on YouTube, you given Milton Friedman, and he has given in the late 60s and 70s, a lot of speeches, some are maybe just 10 minutes, and some are an hour. But you understand Friedman, he was sort of a common sense guy. I mean, he was an accomplished economist. And he understood what money printing does. But he was also a man who could observe, say, in a village, how the market functions, and how people behave and suppose and so on. And they spoke about Capitalism and Freedom is outstanding, because of course, you can say, Look, we had a flood, or an earthquake, the government should help. But once the more you ask the government to help, the more, you will be regulated later on, the more the government expands, and the less freedom you will have. And I mean, Friedman, he doesn't argue that capitalism is the perfect system, but it's the better than the others, because under capitalism, and this is also described in Schumpeter spoke, it's a dynamic process. In other words, successful businesses expand and unsuccessful businesses fail. Now the problem arises in our society because people say well, the company Is the veil which should help them and this and that years and then you end up with a system of subsidies, and all kinds of regulations and laws and then endlessly, and the personal responsibility of people diminishes. And that is in capitalism, yet is failure and so forth. But people are free. If someone doesn't want to work and goes drinking like I do every day, he will fail. But people who are hardworking, like you and your viewers, they will all succeed. I

Andrew Stotz 50:40
see moving around your chair, like you're ready to go for your drink. So I wonder

Marc Faber 50:44
No, no, I don't I have to start writing. So out of that way. So

Andrew Stotz 50:50
that brings me to my last question. But I did want to highlight the resource of going on YouTube and looking for Milton Friedman, because he's just got so many great things to say. And I did see him being interviewed on Phil Donahue many, many years ago. Yeah, exactly. He said something that was just fantastic. When Phil Donahue said, you know, how are you going to, you know, you're just trusting the greedy capitalist, you know, the rich people. And, you know, they're just greedy. And he said, he said, You think in communist Russia and Soviet Russia or in China, that you think that the communists leaders are any less greedy than the US capitalists? They're not. And that was such a great reminder of human nature.

Marc Faber 51:36
Yes, but also, I think he brought to the attention of the world. Of course, the socialists nowadays, they don't like to present the robber baron capitalists like Andrew Carnegie, the Rockefellers. And so as nice people, they were not nice, but we have to see that because they build railroads, refrigerated cars, canals, and steelworks. It created jobs. And everybody says the living conditions of workers were horrible. Well, I agree with that. But they were probably better than in Europe. Otherwise, why would so many Europeans have gone to America. And they didn't go because of Social Security that didn't have there was no social security and government spending as a percent of the economy was never more than 10%. They went because of jobs and opportunity prospects of a better life. My end that transportation costs fell, the meat costs fell. They brought about what capitalism does, it doesn't not produce goods for the king and the queen in produces goods for the average person. And what's wrong with some people becoming rich? I rather have Carnegie having made a lot of money, then that money is in the hands of F socialist.

Andrew Stotz 53:19
A Amen. Well, Mark, last question.

Marc Faber 53:22
Last point I want to make about the big mistake I made. I moved in 73 to Hong Kong. I regretted all my life that didn't buy a property at that time. Of course, I didn't have any money. But that aside, and the second one, I should have taken it easy for six months or a year and learn perfect Chinese, not necessarily Cantonese, but Mandarin, because later on in my life that helped me a lot by speaking perfect Chinese. But I didn't do that. So I tell a lot of my young friends, you know, what would you do is you need to know something that other people don't know so well. And you have to be an expert in one field either fixing Mercedes cars, or fixing Ferrari cars, or be a good carpenter or painter what not, because for quality people will pay. And you know, you live in Thailand. The construction standards here are not good.

Andrew Stotz 54:41
That is true. So let me ask you what my last question is, what are you working on for the next? I don't know six to 12 months, what is something that has got you excited?

Marc Faber 54:54
Well, as you know, we all went to school and we studied geography and mathematics. and history and suppose we all hated school, especially homeworks. And so now, in my free, I mean, I work all the time, because writing is not the job, you just sit for one or two hours, you have to prepare it over a longer period of time, and especially in the financial markets nowadays, you have to follow so many different factors. But I'm interested in the details of the say, decline of the Roman Empire, because they advance all the time, a series, but history is written by historians, and not by economists, that we have to be aware of, and the decline of the Roman Empire occurred for one and only reason, overwhelming reason, and that was, they ran out of money. That didn't have enough money, because in the initial stage of the empires, each time they captured the new territory, it was like taking over a company with good earnings. And you know, that the increased the total earnings of society, but in the end, that didn't work anymore, they took over a lot of societies, and there was no reward. And in some cases, that to pay for the foreign forces, like the gods, not to invade the Roman territory. So they, instead of collecting tribute, they start to pay tribute, that's the US has to do the same they have to pay. Okay, so countries all the time.

Andrew Stotz 56:47
So I'm gonna wrap it up there, listeners, that's another story of loss to keep you winning. Remember, I'm on a mission to help 1 million people reduce risk in their lives. And as we conclude, Mark, I want to thank you again for joining the mission. And on behalf of ACE dots Academy, I hereby award you alumni status for turning your worst investment ever into your best teaching moment. Do you have any parting words for the audience?

Marc Faber 57:14
No, I wish you all well. And I think as I pointed out in the earlier part of this discussion, I think that one has to understand what is inflation. And inflation can shift from one sector to another sector, it's like, you could have manufacturing prices go up and you can have service prices go up. What we have in the last 4050 years is asset prices went up. In my view. As we've seen now, with commercial properties, asset prices are quite vulnerable, especially when consumer prices go up. And as a result of the increase in consumer prices, there is a rising tendency in interest rates. Now the central bank can keep them artificially low for a while. And then we have negative interest rates in real terms. In other words, inflation is 6%. The 10 years Treasuries are 4%. So we have negative yields, in real terms, inflation adjusted, but that then fuels more inflation like in the 70s. And so I'd be more prepared to preserve my capital, then to aim at making a lot of money. Alright, because every day, someone wins the lottery, someone winds up the casino, and 1000 people lose. But in general, I think we're moving into an unfavorable phase for financial assets.

Andrew Stotz 58:54
Okay, and that's a wrap on another great story to help us create, grow and protect our wealth fellow risk takers, let's celebrate that today. We added one more person to our mission to help 1 million people reduce risk in their lives. This is your worst podcast hose Andrew Stotz saying, I'll see you on the upside.