TOM KEENE, BLOOMBERG SURVEILLANCE: The Gloom, Boom and Doom Report, one of our more popular guests, Marc Faber. Good morning.
MARC FABER, PUBLISHER, GLOOM, BOOM & DOOM REPORT: Yes, good morning. How are you?
KEENE: Well, I think I'm good. We've got the Volcker Rule out and banks under siege. Do you care if we have a new banking structure? Do you care that our financial system needs to become more conservative?
FABER: I think it is a very good move that banks become far more conservative because banks, when you think of it, your salary is probably paid into a bank account and you expect that money to be available to you at any time. So the bank has a fiduciary function, and it has a certain social function. And with your deposit, the banks should not go and speculate.
So my proposal is basically to ring fence the depositors, and the domestic operation that is the traditional bank, and then farm out into separate entity what the bank does with money in terms of hedge fund activity. There are a lot of banks they are just like hedge funds. They take huge positions here and there, and then we have losses - as occurred for UBS in London, that basically should not be your concern as a depositor.
KEN PREWITT, BLOOMBERG SURVEILLANCE: Well, Marc, we've had more than one complaint here from guests on Bloomberg Surveillance that they won't invest in banks because the financial reports are not transparent enough. You cannot figure out what is going on in there.
FABER: Well, basically, we had the stress test in Europe and out of 90 banks, only six or seven were deemed to be unsafe. The safe banks, including Dexia, are not safe because the stress test was not properly conducted.
PREWITT: Well, is that the case here in the U.S., too?
FABER: Well, it is very difficult to really assess the quality of earnings of banks. But I am told by experts here in the U.S. that the auditors have become very, very tough and that banks basically are at their lows recently. JPMorgan was at less than $27. That $27 now is $32.
And at their lows, basically the banks were selling below book value. So some people say that American banks are actually a very good investment opportunity at the present depressed level.
KEENE: Marc Faber with us, the Gloom, Boom & Doom Report. Marc, I want to switch gears here. You have a fabulous chart courtesy of the Financial Times, which really describes the gilded age, the plutocracy that we are in now. It is the ratio of income of the top one percent, -
FABER: Yes.
KEENE: - to the bottom 90 percent going back pre-Depression. It is absolutely stunning. Historically, with you being such a great student of our economic history, is it normal where we are now? Or is it normal where we were in the fifties, the sixties and the seventies?
FABER: I think normal is very difficult to define, but very clearly it is not normal where we are now. But we cannot blame Wall Street and well-to-do people for the mishap, for this ratio to have exploded on the upside. We have to blame essentially expansionary monetary policies that favor assets. So you have low consumer price inflation, you have no wage inflation.
In fact, the problem in America is that real wages, real compensation has been down since the 1970s. But at the same time, asset prices, equities, real estate and so forth have gone up dramatically, and that favors people who have these assets. And so the ratio expanded and you have now a record wealth, inequality, and income inequality.
Marc Faber is a famous contrarian investor and the publisher of the Gloom Boom & Doom Report newsletter.
MARC FABER, PUBLISHER, GLOOM, BOOM & DOOM REPORT: Yes, good morning. How are you?
KEENE: Well, I think I'm good. We've got the Volcker Rule out and banks under siege. Do you care if we have a new banking structure? Do you care that our financial system needs to become more conservative?
FABER: I think it is a very good move that banks become far more conservative because banks, when you think of it, your salary is probably paid into a bank account and you expect that money to be available to you at any time. So the bank has a fiduciary function, and it has a certain social function. And with your deposit, the banks should not go and speculate.
So my proposal is basically to ring fence the depositors, and the domestic operation that is the traditional bank, and then farm out into separate entity what the bank does with money in terms of hedge fund activity. There are a lot of banks they are just like hedge funds. They take huge positions here and there, and then we have losses - as occurred for UBS in London, that basically should not be your concern as a depositor.
KEN PREWITT, BLOOMBERG SURVEILLANCE: Well, Marc, we've had more than one complaint here from guests on Bloomberg Surveillance that they won't invest in banks because the financial reports are not transparent enough. You cannot figure out what is going on in there.
FABER: Well, basically, we had the stress test in Europe and out of 90 banks, only six or seven were deemed to be unsafe. The safe banks, including Dexia, are not safe because the stress test was not properly conducted.
PREWITT: Well, is that the case here in the U.S., too?
FABER: Well, it is very difficult to really assess the quality of earnings of banks. But I am told by experts here in the U.S. that the auditors have become very, very tough and that banks basically are at their lows recently. JPMorgan was at less than $27. That $27 now is $32.
And at their lows, basically the banks were selling below book value. So some people say that American banks are actually a very good investment opportunity at the present depressed level.
KEENE: Marc Faber with us, the Gloom, Boom & Doom Report. Marc, I want to switch gears here. You have a fabulous chart courtesy of the Financial Times, which really describes the gilded age, the plutocracy that we are in now. It is the ratio of income of the top one percent, -
FABER: Yes.
KEENE: - to the bottom 90 percent going back pre-Depression. It is absolutely stunning. Historically, with you being such a great student of our economic history, is it normal where we are now? Or is it normal where we were in the fifties, the sixties and the seventies?
FABER: I think normal is very difficult to define, but very clearly it is not normal where we are now. But we cannot blame Wall Street and well-to-do people for the mishap, for this ratio to have exploded on the upside. We have to blame essentially expansionary monetary policies that favor assets. So you have low consumer price inflation, you have no wage inflation.
In fact, the problem in America is that real wages, real compensation has been down since the 1970s. But at the same time, asset prices, equities, real estate and so forth have gone up dramatically, and that favors people who have these assets. And so the ratio expanded and you have now a record wealth, inequality, and income inequality.
Marc Faber is a famous contrarian investor and the publisher of the Gloom Boom & Doom Report newsletter.
