Marc Faber, the editor of the “Gloom, Boom & Doom” report, was a recent guest on the Nothing Exempt podcast. You can listen to the full interview here. I have included some highlights from the conversation below (mostly paraphrased, any mistakes are my own):

• On the US-China trade negotiations: the whole discussion has become distorted because of faulty information and statistics. He thinks there is a possibility the US goes too far and that they might ultimately end up being the big loser, not China. As a result of the consistent productivity and quality improvements in Chinese manufacturing over time, US consumers have been able to buy goods at much lower prices than if there had been no China trade. This has been a good deal for the US. At the same time, China actually exports more to its trade partners (with which they have existing agreements) and to other commodity producing countries than it does to the US. They will continue to diversify and reduce their dependence on the US. By the way, the same is true for most of the other countries in Asia. Increasingly trading with and exporting to China. The only Asian country that currently exports more to the US than it does to China is India.
• On the outlook for emerging markets: equity markets worldwide are rich in terms of valuation. So the upside from here is probably limited, but there is significant downside risk. He could see a situation where markets globally go down, but emerging markets go down less than the US. If they continue to go up, emerging markets could go up more. Some relative out-performance perhaps, but probably not a time to drastically increase allocations to emerging markets.
• On a catalyst for the markets: could be any one of a number of variables, but no one knows in advance what it will be. We do know the global economy is unstable and that debt levels are unsustainable. So the conditions exist for a major downturn. Wealth and income inequality have also increased dramatically, which has changed the political environment. Ultimately, we live in a period of time where there is a lot of manipulation by the central banks. Investors should be asking / thinking about what they will do next.
• On pension funding: unfunded liabilities have exploded. Several solutions. First way is to cut benefits across the board. But this will become a political issue. The second way is to increase contributions. For corporations that have underfunded, they would have to allocate more money every year, which would reduce earnings. Not good for the stock market. Third way is for the government to guarantee all the pensions. In the long run, the Fed may have no alternative but to print money in order to make up the deficits.
• On ignored macro trends that investors may not be looking at: a shift towards socialism in the US and Europe (along with the likely implications of this). Increasing wealth and income inequality over time in these countries has created a very poor political environment. In turn, this has led to policies being implemented that are not favorable for economic growth and capitalist systems. If you speak to young people in Europe, they generally want more, not less, government. Sentiment could be similar in the US over time, especially if the current administration’s policies continue to favor the super wealthy.
• By contrast, the idea of socialism is far less developed in Asia. The least socialist countries in the world today are probably China, Vietnam, Russia etc. where people have lived through communism. Last thing they want is to go back to those days. In the western world, most young people today do not have the same standard of living and wealth profile that their parents had at the same age (except for the very wealthy). In Asia, 90% of people live in better conditions than their parents at the same age. Take travel as just one example. In China, no one could travel outside the country until 1985. In 2000, 10m people traveled outside China. This year, it’s 140m people. China may have a one-party system, but the party is run like a meritocracy. The government in China is actually very capable – on average, the best people get to the top. One of the reasons he prefers to invest in Asia versus the West.
• On his biggest financial mistake: shorting technology stocks at the end of the 1990s. The idea was right, but the timing was wrong. It cost him a lot of money. He wouldn’t short tech stocks today, although he sees some stock valuations that don’t make sense (e.g. Tesla). The lesson he learnt is that in a bubble / money printing environment, you can never be sure when it will end. He thinks if the market went down ~20% today, it would lead to a very bad economic environment. The reason is that the impact of the asset markets on the real economy is much more significant than it used to be. For example, in the 1970s (when he started working), stock market capitalisation was 25-30% of the economy. Now it is 150%.
• On the advice he has for young people today: invest in developing the skills, qualifications and qualities that will guarantee you a good life eventually (even if there is limited short-term reward). When he started to work, the environment for brokers was horrible. He says that you can have a bad period economically but still learn a lot that positions you well for the future. He also took risks – for example, moving to Asia in the 1970s and building up the friendships and relationships that eventually became valuable in the context of his career. Don’t despair or be discouraged by the current economic cycle.