Dominique de Kevelioc de Bailleul: Aside from the cherished and entertaining Faberisms deployed from time to time in his fight to preserve the truth in front of television audiences controlled by a media-based establishment propaganda machine, Marc Faber also demonstrates why he’s the go-to man for clarity and thoughtful insights in the midst of today’s Orwellian headache.
Speaking with FinancialSense Newshour’s (FSN) James Puplava on Wednesday, Faber, the editor and publisher of the Gloom Boom Doom Report discusses a range of topics, from geopolitics, to freedom and tyranny, to his concerns of people living in an age of central bank monetary cannons gone completely rogue. He also touched on one of his favorite asset classes, gold (NYSEARCA:GLD), and the third-rail subject of interest to every gold bug: government confiscation.
As far as how high the price of gold (NYSEARCA:IAU) can go, it depends upon who has control of the printing presses, according to Faber. Right now, he said, the power hungry in Washington won’t let gold bugs down, as each sign of a lurking systemic collapse or stock market meltdown has been propped up by the Fed.
“If I could show you a picture of Mr. Ben Bernanke and Mr. Obama, then I would have to say that the upside is unlimited,” said Faber.
And the downside risk to gold (NYSEARCA:DZZ) rests on the shoulders of central bankers, as well, as the Fed, and now the ECB, will go to any length to feed the global financial system with creative and backdoor credit expansion mechanisms.
“In my view the downside exists if money printing by government is insufficient to revive or maintain credit growth at this level and you have a credit collapse,” he said, and also noted that competing asset classes would most likely fall more, thus retaining gold holders purchasing power during a bona fide deflationary collapse.
But, first, the globe will undergo roaring inflation, according to Faber, then, second, the Robert Prechter, Gary Schilling and David ‘Rosie’ Rosenberg deflationary spiral scenario will play out.
“One day there will be a credit collapse, but I think we aren’t yet there. Before it happens they’re going to print,” Faber speculates. “And when printing as it has done in the last 12 years in the U.S. leads to discontent populations, because when you print money then only a few players in the economy that benefit, not the majority of households.”
However, Faber warns that the gold market’s extremely volatile, a normal symptom of a fiat-backed financial system inducing the public into schizophrenia—of clinging to the familiarity of a 67-year-long financial system, moving to periods of fearing total loss at the currency graveyard—will chase investors out.
“A 30 percent correction or 40 percent correction cannot be ruled out, but as I maintain, again and again, I’m not going to go and sell my gold,” Faber said forcefully, as he explained that owning gold is should be viewed as the ultimate insurance policy to cover financial calamity, a viewpoint shared by famed Dow Theory Letters’ Richard Russell—another periodic guest of FSN.
Whether the gold price is in bubble territory, as a few prominent analysts claim, Faber doesn’t see it that way, at all. In fact, he said, very few people own it or talk about it. History clearly demonstrates that every bubble will suck in the very last investor before collapsing under its own weight.
Besides, the powerful propaganda machine, which endlessly repeats the party line of a system predicated on a fiat system of dollar hegemony, will not allow cheerleaders of the gold bugs to expend too much airtime away from Wall Street advertisers and obvious shills (to the trained eye) of CNBC, Bloomberg and other ‘mainstream’ media.
So far, the propaganda has only delayed the inevitable rush into gold—the next and longest stage of the bull market.
“I have one concern about gold. I was recently on Taiwan and South Korea, at two large conferences, nobody owned any gold,” Faber said. “Gold is owned by a minority, even in the U.S.. Most people in the U.S. have no clue what an ounce of gold is or looks like and so forth. The same in Europe.”
But as the ‘wealthy’ begin to acquire gold, the chasm between the ‘rich’ and poor will widen substantially, not just between the 1 percent and the rest, but between the upper 10 percent and the growing-poorer middle class. That’s when the democratic process turns ugly, morphing from a society of rights to a nation ruled by a tyrannical banana republic political dynamic. See FSN interview, Ann Barnhardt: The Entire Futures/Options Market Has Been Destroyed by the MF Global Collapse. Or transcript.
Populist political leaders vying for votes from the masses will opt to score easy points with the 90 percent have-nots at the expense of the haves, with draconian taxes on assets such as gold and silver held by the haves, not just through taxes on capital gains, but maybe even through a wealth tax on the holdings.
“This is what the tyranny of the masses can do,” Faber explains.
“You can make it, advertise it to the masses by just taking away from a few people, he added. “I’m worried most about is the case of gold, not the price; that I’m not worried . . . but I’m worried about the government taking it away.”
The interview moves on to the discussion of the bull rally in gold and silver (NYSEARCA:SLV). After 11 years of continuous gains in the price of gold, why, then, do so few investors hold the metal?
Faber explains that there remains too many deflationists holding to their thesis of a tumbling gold price, though, as Faber suggests, there has been no factual evidence to support the argument since the pop of the Nasdaq bubble of 1999.
What deflationists point to as proof of their contention, declining housing prices and stock prices, are really manifestations of inflation moving out of those asset classes into others, such as commodities, precious metals and overseas assets, of all kinds. Inflation, Faber has stated in the past, doesn’t move all asset prices up simultaneously.
“I don’t hear about gold. I lived through the last gold bubble between 1978 and January 1980. The whole world, whether you were in the Middle East or in Asia or Europe or in America was trading London gold, buying and selling every day,” he recalls. “This has not happened yet, and it hasn’t happened. Your friends, the deflationists, have been telling people that gold will collapse to $200 an ounce for the last 10 years and that’s it was in a bubble.
“[They] said it [gold] was in a bubble at $500; they said it at $600, and they’re still maintaining it. So a lot of people they don’t own it; they bought it and sold it again. But in the meantime, gold has moved into sold hands.
“In my case, I’m not going to sell my gold unless I have to. In other words, everything else is bankrupt, bond market, stock market, cash and real estate.”
Faber also points out, even though the price of gold appears to look like and quack like a bubble duck, with the price of the yellow metal sporting gains of 700 percent since the year 2000, the monetary base and credit creation by the Fed has been so large for so long, the gold price has much more room to move higher to reach ‘fair value’. See Goldmoney Founder James Turk’s analysis on this very point: BER article, Goldmoney’s James Turk, $11,000 Gold Price.
“I can turnaround and say, look if I consider the price of gold, an average price in mid-1980s, then we take $400 or $450, or whatever it is,” Faber explains, “and we take the monetary base at that time; we take the international reserve; we take into consideration that China hasn’t really begun in earnest to open up; and we haven’t had this wealth expansion in emerging economies, and so forth and so on. Then, I can maintain, well, actually the gold price is not up; it’s just the price of money, or the value of money, has declined so much against a stable anchor. So I don’t think that we’re in a bubble stage.”
For the newcomers to the gold market, Faber stresses, “Don’t buy it on leverage.”
Reiterating his previous comments during the interview, Faber leaves the FSN listener with his overriding observations of a U.S. government (other Westerner countries, as well) that shows signs of eventually taking the next steps in its fight to maintain a hopelessly broken political and financial system: confiscation, not necessarily though a highly unlikely and dangerous door-to-door search of proof of non-paid taxes on a citizen’s bullion stash, but through confiscatory levels of taxation and possible criminal penalties to those who daring to escape the Marxist or Fascist regime’s grip on power over its population’s wealth.
“My only concern with the gold insurance is government will take it away,” Faber concluded. “That is my only concern. I’m not concerned about the price.
“I also have a concern generally speaking about our capitalistic system. For sure people with assets, they will be taxed more heavily, that’s for sure.”