Marc Faber on Commodity Cycles, Monopoly Central Banking and the Wealth Redistribution Craze

The Daily Bell is pleased to present this exclusive interview with Marc Faber:

Daily Bell: Hello, again. Since last we spoke, in June 2011, things have grown worse in some cases and better in other ways. How do you see the world today? What pleases you the most economically and what are you most concerned about?

Marc Faber: Economically, there is not much that pleases me because I think we are in an economy that is on steroids – in other words, the money printing – and the money printing goes essentially to wealthy people. Of course, they spend and as a result of the asset bubbles, temporarily the economy improves worldwide but it’s not sustainable growth. We have to realize that. So economically, I’m actually more pessimistic today than I have been in a long time. That does not imply that asset markets cannot go higher. That is a possibility and, in fact, I hope the US market goes ballistic and creates a gigantic bubble, which will then embarrass the Federal Reserve because every bubble eventually gets deflated.

Daily Bell: What are you most concerned about in regard to the bubble, then – that it won’t happen?

Mark Faber: We have a two-tier economy. We have an economy of well-to-do people from which I have benefited because I’m in the financial sector. My asset value has gone up, I benefit from rising asset prices because I own shares and I’m on the board of companies that own shares, fund management companies and so forth, but I’m not happy about the fact that the typical household and the working class worldwide is not doing well. And what will eventually happen and has begun to happen – and I have written about this already five, six years ago – when you have rising wealth inequality, eventually you have politicians that will not assume personal responsibility for the rising wealth inequality that is largely fostered by monetary policies by central banks, notably the Federal Reserve. They will then go to the public, like Bill de Blasio, and say, “Look, if you are not doing well it’s the fault of the rich people. The rich people are ripping you off.”

The rich people aren’t ripping off anyone. They just took advantage of a situation that was given to them by the Federal Reserve. And so these politicians will go to the people and say, “What we have to do is to punish the rich and let’s introduce a massive wealth tax,” like this clown, Piketty, who has studied – and I do not disagree that he’s done serious work; it’s not exactly correct but he’s done serious work about wealth inequality. When wealth inequality grows too much you have either significant social reforms, social strife or revolutions. And in Europe and everywhere I hear more and more talk about taxing the rich and that is going to happen. It’s not going to help. Redistribution of wealth eventually ends up in redistributing poverty.

Daily Bell: This seems to be what we’re seeing with the recent resurgence of Occupy Wall Street-type resistance and the “1%” meme. What do you think of OWS, generally?

Marc Faber: Basically, I don’t think they should occupy Wall Street. They should go and burn down the Federal Reserve in Washington and hang up the ultra-dovish Fed governors that advocate even more money printing. That they should do.

Daily Bell: You are known as Dr. Doom because of your crash predictions. We think stock markets are being pushed higher and then will crash radically, giving rise to suggestions for a more global marketplace. Any truth to this?

Marc Faber: Well, all markets are correlated. If the S&P drops 20% I don’t see many markets going up. If you print money you will get symptoms of inflation and one of the symptoms of inflation is rising asset markets. It can also be rising consumer prices, rising wages and so on. Because we have an absence of foreign exchange controls and we have a globalized economy, the US may print money and there is more inflation in the US in terms of consumer price increases than what the Fed is suggesting. But at the same time, the larger inflation has been in emerging economies and even larger bubbles have occurred there. My view is that to boost economic activity by boosting asset prices is a horrendous – and I repeat, horrendous – mistake because it’s been established by numerous economies starting with Copernicus and David Hume and Irving Fisher that asset bubbles impoverished the majority to the benefit of the few.

Daily Bell: There are some exciting new investment prospects, specifically as regards cannabis. What do you think about the legalization of marijuana? Is it an investment opportunity?

Marc Faber: In general, I believe that any kind of drug should be legalized and there would be less crime and probably less usage. I’m all in favor of legalizing drugs because all I see, and I’ve looked at it very carefully when I was in Mexico – the drug business is so incredibly profitable that there is widespread corruption, at the CIA, at the FBI, at the police force, in the military, and that is not a very desirable outcome. If it was legalized, we would have far less crime and far less corruption. It’s like during the Prohibition time – alcohol consumption if anything rose and there was much more crime and much more corruption.

Daily Bell: How do you see it from an investment perspective?

Marc Faber: I really have no idea. I’m not interested to invest in any kind of drugs because I don’t use them. I have smoked a joint from time to time and I may still do it once in a while but it’s not an investment destination that interests me.

Daily Bell: Let’s look at precious metals. Is the dollar due to drop against gold? How about silver?

Marc Faber: My inclination is to believe that the central banks eventually will have to make a choice. They have created asset bubbles. At the same time, the economy has hardly recovered. What will happen when the asset bubbles burst again, say the stock market goes down 20%, the property market goes down and so forth? What will be in the mind of the Federal Reserve and other central banks? What will be in their minds is more money printing will do less damage than no money printing. And so the asset purchases, the QE I, II, III, IV will go on to what I predicted in 2009: It will go to QE 99. And as a result of that, not only the US dollar but all currencies will lose in value against some assets, irregularly at times. Real estate will go up at times. At times commodities will go up at times. Stocks and bonds will go up at times. Buy my inclination is to think that when this all happens and even before – because the market is a discounting mechanism – is that gold and silver will again appreciate against the US dollar.

And don’t forget – and I have to stress this – the media is all over the fact that gold hasn’t performed well, in September of this year, for the past three years and silver equally. But they never mention that between ’99 and 2001, all precious metals significantly outperformed stocks and even today, precious metals between 2000 and today have significantly outperformed stocks. But the media paints people that own gold as kind of out of this world, out of touch. In my view, the recent gold rally has occurred amidst very negative sentiment. I get so many research reports from all over the world, from banks, investment advisers, gold bugs and so forth. By and large in this rally the mood has stayed negative. I think we made a major low over the last two years around $1180 to $1200 on the gold price and around $20 on the silver price, and I don’t recommend people to put all their money into gold – but maybe they should; the question is, where would they keep it? Certainly not in the US – but in general I would say now is probably quite a good time to buy some gold and silver, and I believe that from here on gold and silver will outperform the S&P 500, the Nasdaq and the Russell 2000. It’s my view.

Now, if we have a complete breakdown of the monetary system then maybe everything goes down and then stocks may go down 80% and gold only 40% or 50%. I’m just saying, relatively speaking in my view, gold and silver, platinum, palladium are quite attractive and I recommend people to have at least some exposure to precious metals in physical form.

Click here for complete interview with Marc Faber at Daily Bell