US Treasuries or Asian Stocks? An Interview with Marc Faber, Part II

A couple of weeks ago, we brought you Part I of an interview Eric Fry conducted with Dr. Marc Faber from the sidelines of our annual investment symposium in Vancouver, Canada. They chatted about all the usual stuff: deflation vs. inflation, the emergence of developing economies and the ever-changing landscape of today’s investment environment.

In Part II of this interview, which we present below, Dr. Faber highlights some attractive, often overlooked markets in which readers may consider investing some of their money and/or time. Plus, there’s some bonus advice for any blind and/or asexual readers who might be tuning in.

Eric Fry: Okay.  But if we then apply this outlook to the financial markets, you’ve said that treasuries are a terrible bet.  And you’re anticipating the kind of inflationary trend that will manifest itself in falling treasury prices and in rising hard asset prices.

Dr. Marc Faber: Yes.  I’m not talking about the next three months.  This is a trade to buy treasuries here.  I wouldn’t do it because treasuries have rallied now between 1981 and the essentially 2008.

The rally – the gravy is out of the Treasury bond market rally.  You’re dealing now with minor moves.  But in the long run, over the next five to ten years, I don’t see any value in owning a 10 years treasury or a 30 years treasury that yields between say 2.95 percent and 4 percent.

Eric Fry: Right.  Would you be expecting those yields to go much higher over the next –

Dr. Marc Faber: Much, much higher.  Much higher.  Because I remember in 1970 the 10 years yield was at 10 percent.  Nobody dreamt that it could go to over 15 percent, and it happened.  And by the way, in the 1940s the yield was at 2 percent.  Do you think anybody ever dreamt that they would go up to 15 percent?  It can happen.

A lot of things can happen.  And usually movements in interest rates and in commodities, they go further than what people think.

Eric Fry: Okay, let’s take a little bit longer term view and I’ll pose the question this way.  You’ve lived much of your life overseas in Asia.

Dr. Marc Faber: Yes.

Eric Fry: If you were to counsel a 20-year-old American today and say, “Go pick a country.  Go live there.  Go make your fortune there.” Where would you tell them to go?

Dr. Marc Faber: Well, that depends obviously on preferences.  I like Asian women.  But maybe somebody else likes Brazilians or Cubans or Russians or Eastern Europeans.

There are lots of things to consider.  Everybody has his individual personality and his likings and his less likings and so forth.  So this is something that is important to consider.  It also depends what he wants to do and whether he gets a good opportunity.  I was lucky because in 1970 an American investment bank said, “Marc, we want you to go to Asia and build up the business.”

So then I had an employer that paid essentially my apprentice money at that time in Asia.  If you have no money and you arrive in Asia and you don’t speak today Chinese or any Asian language, you may have a tough time to start.  I’m not saying it’s impossible.  But it’s maybe a harder way.  But there are many ways to go to Asia.  You can go – say if you’re in the hospitality industry you can work in a hotel in Asia.

Or if you’re in the financial industry, you can work in the financial industry in Asia.  There are plenty of opportunities.

Eric Fry: Which countries do you think – let’s assume you’re either blind or asexual or both, so you don’t care about Asian women.  Now what economy would you want to build your fortune in?

Dr. Marc Faber: Well, you see I live in Thailand because I happen to like Thailand.  And I don’t need to build a fortune anymore.  It’s a question to preserve what I have, and more than that I don’t need.

But if I were 20 I would probably go to Vietnam, Mongolia, China – depends where in China.  Or depending on the condition, possibly also Singapore, Hong Kong, or India.  These would be places I would consider.  And Latin America, of course.

Eric Fry: Okay.  And then for the older investor you recommend those same markets as a long-term –

Dr. Marc Faber: Well, I think as an investor you should essentially invest in a diversified portfolio of assets.  I happen to find, in Asia stocks, they’re obviously no longer as cheap as they were in March 2009.

But you could assemble a portfolio of stocks with a dividend yield of around 5 percent.  And in my opinion, that portfolio of shares will fluctuate, but I think it will be a better investment over the next ten years than cash at zero interest rates and treasury bonds at 3 percent interest rates.  You understand?

So I would recommend a diversified portfolio of some Asian shares.  Yes.

Eric Fry: Great.  Thank you.  Thanks for spending time with us.

Dr. Marc Faber: It’s my pleasure.

Eric Fry: We appreciate it.

Dr. Marc Faber: Yes.  My pleasure.  Thank you.