On the Precipice: Marc Faber and the Central Banking Fiasco

An interview with Marc Faber

OR: In Asia, you’ve said you think Macau stocks are interesting.

Faber: I’ve been following Macau for quite some time. When oil was at $100 there were many analysts predicting it would go to $120 or $150. Now that it is down below $50, many analysts predict it to go down to $20. They move with the flow. In the case of Macau: when the market was hot in 2012, everybody thought that nothing could go wrong; now that casino stocks there are down 50 percent or 60 percent, everybody is bearish.

I happen to think that Macau is a big story fundamentally in terms of gamblers going to Macau for gambling but also for entertainment. Now in February gaming revenues compared to a year ago were down on the order of 50 percent. They may stay depressed for a while, but in a couple of months I think the figures will start to look better. The place is basically the Las Vegas of a region with close to four billion people.

At this level I would consider starting nibbling. I haven’t bought the casino stocks yet but I think in a few years time they’ll be higher than they are now.

OR: You mentioned Russia and Iraq. Are you investing now in Russia?

Faber: I have some Russian bonds of some Russian credits. I think they’ll pay the interest and repay the principal. Russia is a very complex situation and again the reporting by the media has been very biased. I’m not saying that Mr. Putin is a nice guy but I’m not saying that Mr. Obama or Mr. Bush were nice people either. America had the missile crisis in Cuba in 1962. They would not have accepted an American base in Cuba and they will never accept a Russian base or a Chinese base either in Mexico, the Caribbean, or Canada.

For the US, Crimea is irrelevant and Eastern Ukraine also irrelevant. But for Russia it has a huge strategic importance. And the one thing I guarantee you, they will not give it up, for sure. The Russians did not permit the aggression, the aggression came from the US. The Europeans went along and they wanted to establish basically NATO in Ukraine -- which is not acceptable to Russia -- and so now we have this standoff.

But I believe 90 percent of the European public understands the situation. I talk to lots of people in Europe, and everybody agrees. Crimea and Eastern Ukraine have to be controlled by Russia and there is no need for the current sanctions to be imposed on Russia.

OR: So you think the situation is more complicated and that the Ukrainians aren’t necessarily archangels either?

Faber: Yes. It was ridiculous of someone like Cameron to say that Putin is like Hitler. There’s no comparison. It was taken out of the air and broadcast to the people. Most people realize that the media in Russia may be lying but that the media in the Western world is also lying. Nobody believes anymore what governments are saying.

OR: Do you think the Russian market is now sufficiently discounting bad outcomes vis-à-vis Ukraine?

Faber: Let’s put it this way: I believe the Russian market and the currency went down more because the oil price collapsed then because of the standoff over Ukraine. I don’t necessarily believe that Putin is in a corner at all -- yes, the Russian economy is not growing anymore but it hasn’t been growing much in the last 12 months regardless. Strategically, the U.S. makes a huge mistake because they’re driving Russia much closer to China. The Chinese in my opinion love this standoff.

OR: It’s probably not surprising the Iraqi market has gotten hit.

Faber: Iraqi stocks are selling at a very, very low valuation. There are significant risks there but I believe that the Iraqi government in Baghdad will stay in power. I don’t think the world will let ISIS take Baghdad and southern Iraq. The stock market at this level is probably reasonable. It’s inexpensive. There’s a risk. But when people say to me: “There’s a huge risk here and a huge risk there,” I say: if there’s no risk then the asset prices are already very high.

OR: You’re out in Asia. Do you see a big slowdown going on in China?

Faber: I’ve written about this for now essentially a year. The Chinese economy at the present time is growing nowhere as fast as the government would indicate. I think if we have growth over four percent, that’s about the maximum. There are many economic indicators that suggest that there’s actually no growth at the present time. That’s where they began to ease as well. But I’d like to just point out, China is actually not a country, it is an empire and it has a population twice of the US and the Eurozone combined. It’s a huge place.

Now, if you look at the economic history of the US since 1800, how many recessions and crises have beset it? The Civil War, World War One, the Depression, World War Two. The country continued to grow. That China can have a recession that I fully agree. It may be serious but in the long run I think it should be okay.

In economies the size of the US and China nowadays you can have some sectors of the economy and some regions that are contracting and other regions and other sectors that are still expanding. I do not dismiss the fact that China has a colossal credit bubble and that as a result we could have a serious recession in China. That is a possibility I’m not ruling out.

But the stock market in China went down between 2006 and 2014 enormously relative to the US and global markets. And about six months ago I started to write about Chinese stocks, that the economy is slowing down is crystal clear. But to what extent have stocks already discounted that because foreign investors were underweight Chinese stocks? All the money in China flowed into the property markets; nobody was interested in stocks. Now stocks have rallied 50 percent from the lows and I think they will correct. But I also think if you take a view over the next five to 10 years, probably you will make more money in Chinese stocks than in US stocks.