فصل 6 بخش 10

CHAPTER 6.10

MARC FABER: THE BILLIONAIRE THEY CALL DR. DOOM

Director of Marc Faber Limited; Publisher of Gloom, Boom & Doom report

The fact that Marc Faber’s investment newsletter is called the Gloom, Boom & Doom report should give you a hint about his outlook on markets! But this Swiss billionaire isn’t your average bear. Marc, who’s been a friend of mine for many years, is a colorful, outspoken contrarian who follows the advice of the 18th-century investor Baron Rothschild: “The best time to buy is when there’s blood in the streets.” And like Sir John Templeton, he hunts for bargains that everybody else ignores or avoids. That’s why, while so many are focused on the US stock market, Marc Faber looks almost exclusively to Asia for his growth investments. He’s also a blunt critic of all central banks, particularly the US Federal Reserve, which he blames for destabilizing the world’s economy by flooding it with trillions of dollars, virtually “printed” out of thin air.

Marc has earned the nickname “Dr. Doom” by continually predicting that the most popular assets are overpriced and headed for collapse. As the Sunday Times of London wrote, “Marc Faber says the things nobody wants to hear.” But he’s often been right, especially in 1987, when he made a huge fortune anticipating the US stock market crash.

Faber’s father was an orthopedic surgeon, and his mother came from a family of Swiss hoteliers. He earned a PhD in economics at the University of Zurich, and started his financial career with the global investment firm White Weld & Company. By 1973, he had transferred to Asia, and never looked back. From his office in Hong Kong and his villa in Chiang Mai, Thailand, Marc has had a front row seat to the incredible transformation of China from a communist quagmire to the growth engine that drives the whole region. He’s now considered one of the leading experts in Asian markets.

Marc is known for his eccentricity—he gleefully acknowledges his reputation as a “connoisseur of the world’s nightlife”—and is a popular speaker at financial forums and on cable news shows. He’s a member of the prestigious Barron’s Roundtable, where, according to independent observers, his recommendations have had the highest returns, almost 23% per annum, for 12 years in a row. Marc is also the author of several books on Asia, and the director of Marc Faber Limited, a Hong Kong–based advisory and investment fund. Marc speaks English with a gravelly Swiss accent and never takes himself too seriously. Here’s an excerpt from my onstage interview with him at my Sun Valley economic conference in 2014.

TR:

What would you say are the three biggest investment lies that are still promoted in the world today?

MF:

Well, I think everything is a lie! It’s always very simple! But, I mean, look: I’ve met a lot of very honest people and so forth, but unfortunately, in your lifetime, you will come across more salesman-type financial advisors. You should really have people that are very honest. But I can tell you this from experience: everybody will always sell your dream investments, and my experience has been, being the chairman of many different investment funds, usually the clients make very little money. But the managers of the fund and the promoters, they all walk away with a lot of money. All of them.

TR:

Where should investors turn?

MF:

There are different theories in the investment world. There are essentially the efficient-market theory proponents. They say that markets are efficient. In other words, when you invest, the best is just to buy an index. And the individual selection of securities is basically useless. But I can tell you, I know many fund managers that have actually significantly outperformed the markets over time, significantly. I believe that some people have some skills at analyzing companies because they’re either good accountants or they have skills.

TR:

What do you think of the markets these days?

MF:

I think there’s still risk in the emerging world, and it’s still too early to buy their currencies and stocks—and it’s too late to buy the US. I don’t want to buy the S&P index after it reaches 1,800. I don’t see any value. So best is to go drinking and dancing and do nothing! Do you understand? It was Jesse Livermore [a famous early-20th-century trader] who said, “The most money made is by doing nothing, sitting tight.” Sitting tight means you have cash.

In your life, the important thing is not to lose money. If you don’t see really good opportunities, why take big risks? Some great opportunities will occur every three, four, or five years, and then you want to have money. There was a huge opportunity in US housing prices at the end of 2011. Actually, I wrote about this. I went to Atlanta to look at homes, and then Phoenix. I don’t want to live there, but there was an opportunity. But the opportunity closed very quickly, and the individuals were at a disadvantage because the hedge funds came in [with cash]—the private equity guys, they just bought thousands of homes away.

TR:

Do you see deflation or inflation coming?

MF:

The inflation-deflation debate is misplaced, in my view, in the sense that inflation should be defined as an increase in the quantity of money. If the money in circulation increases, as a result credit increases, we have monetary inflation. This is the important point: monetary inflation. Then we have the symptoms of this monetary inflation, and these symptoms can be very diverse. It can be an increase in consumer prices, it can be an increase in wages, but again, it’s not as simple as that because in the US, we have, in many sectors actually, a decline in wages in real terms over the last 20 or 30 years already, inflation adjusted. But what about the wages in Vietnam and in China? In China, wages have been going up at the rate of something like 20% or 25% per annum and also elsewhere in emerging economies.

So to answer your question, in a system, we can have deflation in certain things, and assets and goods and prices and even services and inflation in others. It’s very seldom that in the world everything will go up in price at the same rate or everything will collapse in price at the same rate. Usually, if you especially have a fiat currency system, those who can print money, and what you will have is the money doesn’t really disappear. It just goes into something else. What can disappear is credit—that’s why you could have an overall price level that would be declining.

But for us investors, we essentially want to know which prices will go up. Like, “Is the price of oil going to go up or down?” Because if it goes up, then maybe I want to own some oil shares; and if it goes down, I may want to own something else.

TR:

What would you suggest would be the asset allocation to take advantage of in the environment we’re in right now and to protect yourself?

MF:

Well, my asset allocation used to be 25% shares [stocks], 25% gold, 25% cash and bonds, and 25% real estate. Now I have reduced my stock positions as a percentage of the total assets. I have more cash than I would normally have. I increased the real estate in Vietnam, and I increased the equity portfolio in Vietnam.

TR:

So what might that look like today then, percentage-wise, out of curiosity?

MF:

Well, I mean, it’s difficult to tell because it’s so big.

TR:

Are you talking about portfolio or something else?

MF:

[Laughs.] No, the thing is this: I don’t know! I mean, I’m not counting everything every day.

TR:

Well, what would it look like roughly?

MF:

Roughly, I think bonds and cash would be now something like 30%, 35%. And then stocks maybe 20%; then real estate, I don’t know, 30%; and gold 25%. It’s more than 100%, but who cares? I’m the US Treasury!

TR:

We know why you like cash. What about bonds, when many people are afraid they’re at the lowest level they can be?

MF:

The bonds I traditionally hold are emerging-market bonds. The corporate bonds are also mostly in dollars and euros. But I want to explain this very clearly. These emerging-market bonds have a very high equity character. If the stock markets go down, the value of these bonds also decline. Like, in 2008, they tumbled like junk bonds. So they’re more like equities than Treasuries. I own some of these. That’s why when I say I’ve a low equity exposure of 20%, my equity exposure through these bonds is probably more than 20%—maybe 30%.

I think sometimes as an investor, we make a mistake that we have too much confidence in our view, because my view is irrelevant for the whole marketplace, do you understand? The market will move independently of my view, so I may not be optimistic about Treasuries, but I could see a condition under which Treasuries would actually be quite a good investment even for a few years. You will only earn your 2.5% or 3%. But that may be a higher return in a world where asset prices go down. Do you understand? If the stock market goes down for the next three years by, say, 5% per annum or 10% per annum, and you have this yield of 2.5% to 3%, then you’ll be the king.

TR:

What about other asset classes?

MF:

There’s a lot of speculation for high-end real estate; high-end real estate is at an incredibly inflated level. I believe all these inflated levels—I’m not saying they can’t go any higher, but I am suggesting that one day they’ll come down meaningfully. And that in that condition, you want to have something that is a hedge.

TR:

You have a quarter of your assets in gold. Why?

MF:

Actually, what is interesting is when I told this to audiences before 2011 [when prices started dropping], people said, “Marc, if you’re so positive about gold, why would you only have 25% of your money in gold?” I said, “Well, maybe I’m wrong, and I want to be diversified because the gold price has already had a big move and is due for consolidation.” Gold is probably to some extent a hedge, but not a perfect hedge in an asset-deflation scenario if you have it in physical form. But it’s probably a better investment than a lot of other illiquid assets. It will probably also go down in price, but less than other stuff. Treasury bonds, for a few years at least, should do okay in a deflation scenario for asset prices—at least until the government goes bankrupt!

TR:

Last question. If you couldn’t pass on money to your kids, only a set of principles to build a portfolio, what would they be?

MF:

I think the most important lesson I would give a child or anyone is: it’s not important what you buy; it’s the price at which you pay for something. You have to be very careful about buying things at a high price. Because then they drop, and you’re discouraged. You have to keep cool and have money when your neighbors and everybody else is depressed. You don’t want to have money when everybody else has money, because then everybody else also competes for assets, and they are expensive.

I would also say, look, I personally think we have in general no clue about what will happen in five or ten minutes’ time, let alone in a year’s time or ten years’ time. We can make certain assumptions, and sometimes they look fine and sometimes they’re bad and so forth, but we really don’t know for sure. That’s why as an investor, I would say you should be diversified.

Now, not every investor can do that because some investors, they invest in their own business. If I have a business like I’m Bill Gates, then I put all my money in Microsoft—and that was, for a while, at least, a very good investment. Probably for most people, the best is to have their own business and to invest in something where they have a special edge compared with the rest of the market; where they have an insider’s knowledge. That’s what I would do. Or give money to a portfolio manager. If you’re very lucky, he will not lose your money, but you have to be very lucky.