My friend Marc Faber, publisher of the Gloom Boom & Doom Report, has never shied away from sensitive issues; and in today’s Outside the Box he tackles a big one: the relationship between asset prices and US household wealth, and the effect of that relationship on the economy.

Nominal US household wealth is at an all-time high but, says Marc, that’s mostly an illusion. The wealth of the top 0.1% has vastly improved in recent decades (and the top 10% haven’t done at all badly), but “the median household’s or asset owner’s wealth has declined by close to 40% in real terms (adjusted by the CPI) from its peak in 2007.”

Median household increases in wealth are also illusory because the main component of household wealth is pension fund assets (approximately US$22 trillion). Marc spends considerable time on this point, because – as I have regularly noted in Thoughts from the Frontline, pension underfunding is dire and getting worse. (And I will write more about pension funding – rather underfunding – this weekend.)

Marc also points out that a large chunk of household wealth is held in the form of owner-occupied homes, and these assets are on average cash-flow negative (because of taxes, maintenance costs, mortgage payments, etc.). Further, if your home’s nominal value has appreciated by, let’s say, 300% in 30 years and you now sell and then go to purchase a home of similar quality elsewhere, the properties you are be shopping for will most likely have also appreciated, wiping out your so-called 300% gain.

The top 0.1% of US households own more than the bottom 90%, and it’s this ever-growing disparity between the super-wealthy and the average citizen – and its overall impact on the economy – that most troubles Marc:

I’m not discussing these issues because I have some rancour about these “conditions” from which I actually profiteered greatly. I am discussing them because I believe that an unstable system in which the majority of people lose out to the privileged few is simply not sustainable and will end either with a Bernie Sanders-type socialist gaining power or with the establishment of a dictatorship. Democracies promised a level playing field in society, but that certainly does not seem to be in place nowadays. I suspect that we have never yet had a level playing field, but I feel that we are reaching a tipping point where something is likely to give, and I am afraid that this “something” could be the inflated asset markets.

(You see, I don’t call this letter Outside the Box for nothing.)

Marc will be speaking at my Strategic Investment Conference in May; and if you’re in attendance you’ll have ample opportunities, in both formal and informal settings, to quiz him on his views on this and other issues. To get a seat in the room – while we still have some – click right here.

I have spent the last 48+ hours immersed in discussions on various biotechnologies and therapies, specifically, ones focused on not simply holding off the ravages of aging but rather on the potential for actually reversing the aging process. I know that all sounds very sci-fi and unrealistic, but you have to understand that there really is a great deal of progress being made here and there. I will admit that I am generally allowed in the room because of the enormous credibility that Patrick Cox has in the antiaging/biotechnology world.

This was one of those special occasions when several key people could show up in Tampa Bay for meetings one after another. Nondisclosures are involved; and in some cases the situation was almost funny, in that, while everyone is pulling for the same outcomes, in the sense that they are all trying to help humanity, they are somewhat (well, maybe more than somewhat) protective of their own intellectual property; and so not everyone was in the same room at the same time.

Those NDAs will come off over time, and we will be able to share what we are learning. After the last two days, I am more optimistic than ever in terms of lifespan and health span than I have ever been. I’m convinced that people are in for a much longer run than any of us have planned for.

But from the point of view of the pension un-funding that Marc is talking about in the piece below and that I will be talking about this weekend, you need to plan to work longer and save more. If you are under 55, unless you have saved and built up a rather sizable nest egg, retirement should be a four-letter word, not to be used in polite company.

For those who are worried about there already being too many people in the world, and how will we take care of everyone if we all live much longer, I would simply point out that that is first-world thinking. Most people around the world are trying to figure out how to simply survive, and offering people the opportunity to live better, healthier, and longer lives must generally be considered a good thing. And if we can give them that opportunity, I think we can figure out how to feed them, too.

Just so you don’t think I’ve gone off the optimistic deep end, I am far less sanguine about central banks and politicians and governments. And, like Marc, I’m worried about the frustrations of voters who are learning that they are on the short end of the pension and healthcare plan sticks. And I can’t blame them one bit. I’m spending a great deal of time thinking and writing about these issues, because they are absolutely central to how the next 20 years will play out.

I stayed over one day to go to Sarasota and spend some more time with a few of the scientists and their friends, to form an even deeper picture of developments. I fly back to Dallas tomorrow, where I will be for a few days, for the Easter break.

You have a great week, and now let’s turn to Marc.

The Influence of Affluence

By Marc Faber
Excerpted from the Gloom, Boom & Doom Report for April 2017

“For as wealth is power, so all power will infallibly draw wealth to itself by some means or other.”
– Edmund Burke (1780)

“Of great riches there is no real use, except it be in the distribution.”
– Francis Bacon (De Dignitate et Augmentis Scientiarum, 1623)

“That mankind as a whole shall become richer does not, of necessity involve an increase in human welfare.”
– John Bates Clark

“Riches: The saving of many in the hands of one.”
– Eugene V. Debs

Those persons who comprise the independent classes are dependent upon two things: the industry of their fellow creatures; and injustice, which enables them to command it.
– Based on John Gray (A Lecture on Human Happiness, 1825)

“No rich man is ugly.”
– Zsa Zsa Gabor

Introduction

The other day, I was interviewed by CNBC. One of the participants on their panel asked me whether I believed I was providing a service to investors by warning them that stocks could decline by between 20% and 40%, or even more. He further questioned my morality in dissuading investors from buying stocks that were being touted as a once-in-a-lifetime opportunity to make money following their March 2009 lows. Aside from the inaccuracy of the interviewer’s statement that I had been keeping investors out of the market, I was taken aback by the notion of a CNBC employee talking about morality. Every year, I attend several conferences and Hillary Clinton about ethical behaviour, Trump about modesty and unpretentiousness, Bernanke and Yellen about “honest money”, and mobster Whitey Bulger about mercy. (Federal prosecutors indicted Bulger for 19 murders.) Still, the question prompted me subsequently to contemplate whether periods of high monetary inflation (printing money) make people wealthier in real terms. Last month, I explained that it is an irrefutable fact that inflation-adjusted millennials earn less, and have less wealth, than the baby boomers had at the same age. (See Table 1 for easy reference.)