It’s All Relative
In a Bloomberg TV interview, the outspoken Marc Faber says “Given the alternatives, I would vote for Mr. Trump, because he may only destroy the U.S. economy, but Hillary Clinton will destroy the whole world.”
Note: I am having trouble inserting this video. But a complete transcript follows.
Here’s a link to the key portion of the interview.
Complete Transcript – Emphasis in Italics Mine
MARK BARTON: Who better to sort through this huge week for monetary policy than Marc Faber, editor and publisher of the “Gloom, Boom, and Doom Report”. He joins us from Zurich. Marc, good afternoon. Thanks for joining us today.
MARC FABER: Good afternoon.
BARTON: Christine Lagarde, as you know, the IMF managing director, has come out today and she has said, the world economy would be worse off without negative interest rates. (laughter) I knew you’d laugh. And she admitted she was being counterfactual. I suppose your laugh tells me what you think of that comment.
FABER: Look, I believe that the intervention with fiscal policies and with monetary policies, in other words, the so-called neo-Keynesian or new Keynesian, that is their excuse. They will always say, if we hadn’t done this and hadn’t done that, it would be much worse. They have no proof for this assertion. In my view, it would have been better to let the crisis, already the first one in 2000, run its course and prevent the colossal credit bubble that was built up that then led to an even bigger crisis, and now they’re doing the same mistake. They’re again adding to credit volumes in the world. Credit as a percent of the global economy is up very strongly since 2007, in particular, of course, in China, but also in other countries. And we distinguish between productive credit and unproductive credit. Productive credit is to build a factory with credit and then hire people and acquire machinery and then produce something, either services or goods. But most of the credit is now for transfer payments and that is very negative for long term structural economic growth because it allows, actually, the government to become bigger and bigger and to have more regulations, and I can tell you, I’m in the financial sector and I talk to people in the financial sector. Half the time is nowadays consumed with filling out forms by regulators.
BARTON: Marc, how are they going to fight, then, the next crisis? I mean your prescription would have been more fiscal policy. That should have played a more active role. Will we see more publicly funded infrastructure when and if the next crisis hits?
FABER: Yes, that’s a very good question, because the magicians at central banks, they always come out with a new trick and these negative interest rates that we have today, this is for the first time in recorded human history from the times of Babylon up to today that we have negative interest rates, and it’s not going to end well. That, I can tell you. But the sequence of how it will not end well, I’m not so sure. But they still have a lot of ammunition. What they can do is helicopter money. In other words, they can send you and Mr. Bloomberg and me and everybody, say a check for $10,000, and that is like throwing gasoline into a fire. For a while, the fire will grow and expand, and then after, it will again go down, and then you need other doses of helicopter money. So the next time around, they can send out checks for $20,000 to everybody, and this will be a very popular measure because everybody will get $20,000. For the rich, it won’t mean anything, $20,000 more or less. But say, for the poor people and for the lower middle class, to get $20,000 a piece will be very desirable. So they can do a lot of things if they want to, but will it help the economy? That is the question. It won’t help in the long run. You cannot grow an economy by just throwing money at people.
CAROLINE HYDE: What should they be doing? What policies would you want to be enacted, Mr. Faber?
FABER: I want to tell you, the less policies, the better it would be. We all learned at school that the free market and the capitalistic system is the best allocator of resources, and now what we have is the worst allocation of resources because it’s the government that tells you how these resources are allocated and they continuously expand their interventions, and I can tell you, I started to work in 1970. In the 70’s and early 1980’s, central banks actually never came up in discussions. They have now become like the messiah, and everybody watches what the central banks do and in the end, in my view, they will have, from a long term perspective, no impact whatsoever. Now can they move markets short term? Yes, but maybe not in the direction they want to.
HYDE: You talk about allocating resources, Mr. Faber. Allocate my resources for me right now, because I’m looking at the picks that you have and you’re saying, get into the dogs of the world, of course, your usual pun. Brazil. You’re saying get into Brazil, get into Russia. How are you going to convince me? I mean, such political turmoil there.
FABER: Well, you see these emerging markets like Brazil and Russia, of course they are in recession, whereby Russia is doing better than Brazil, but the valuations have come down very substantially, and if you ask me, Marc, where should I allocate my funds today in the U.S. stock market, which is essentially very highly priced by any measure, priced to sales, priced to earnings, and so forth. Market cap to GDP, the U.S. market doesn’t come out favorable. Now, the emerging markets, they have corrected significantly, some since 2006, and some since 2011, and I would say they are relatively attractive, so if I have to invest money today and I’m investing all the time money, because I have a cash flow, I invest in emerging economies. You can buy the Singapore stock market with a four percent dividend yield. Well, Singapore is a relatively sound economy. It’s diversified and it’s well run, unlike the U.S., unless, of course, the U.S. is run by Mr. Trump. Then the U.S. will improve.
BARTON: Are you really a fan of Mr. Trump, Marc? Do you really believe — ?
FABER: It is all relative. Given the alternatives, I would vote for Mr. Trump, because he may only destroy the U.S. economy, but Hillary Clinton will destroy the whole world.
BARTON: Why will Hillary Clinton destroy the whole world? What’s the evidence? (laughter)
FABER: Look. Look at her nation building in the Middle East, how successful that has been.
HYDE: But Mr. Faber, I mean, we’re seeing from Donald Trump’s potential policies that he wants to slow international trade between the United States and other countries. Surely that’s going to be a block upon free markets.
FABER: Well, I agree that it is negative if you have restrictions on a free market. That, I agree entirely. But you have to equally see that the U.S. has essentially given in on a lot of things that benefit other countries. If you look at, say, the growth, 2000 to today, which countries have done relatively well? The emerging markets have done fantastically well. Their GDP has gone up substantially. The standards of living have gone up substantially. They have accumulated large reserves, and so forth. The U.S. and Europe and Japan, relatively speaking, have been declining, and that, the statistics are visible from industrial production in emerging economies. It’s doubled in the last 12 years. Global trade, you look at the share of emerging markets, it’s gone up. The developed world, the U.S., Europe, Japan, it’s gone down and so forth. So I think that maybe we have to find a way to have a more balanced approach to global trade. I’m not saying protectionism, but the more balanced approach that is fair to the developed world.
HYDE: Give me another call for me, Mr. Faber. You’re saying at the moment that you like long term U.S. treasuries, but the consensus is for yields to rise. What do you feel is the beneficial trade there in terms of, you’re saying relatively speaking, getting to long term U.S. debt? Why?
FABER: Sorry, I didn’t get the question.
HYDE: Bonds, U.S. bonds. Where would you be allocating there? Give me some more tips on your resources.
FABER: Yes. Actually, I still hold U.S. treasuries. They did very well until about two weeks ago and since then they sold off. I sold some trading positions but I’m looking back to buy some of them because I believe that eventually, Miss Yellen will also introduce negative interest rates. Don’t forget, in 2009, she said, publicly, if it were possible to introduce negative interest rates, I would be voting for that. So I believe that there is a chance that in the U.S., they’ll do the same as elsewhere, as in Japan and as in Europe.
HYDE: Marc Faber, always — an opinionated man. Thank you very much indeed, giving us some of your views. That’s negative rates next for the U.S. as well, it seems. Marc Faber, editor and publisher of the “Gloom, Boom, and Doom Report”.
Mike “Mish” Shedlock