Nov 1 2016

Dr.
Marc Faber Market Commentary November 1, 2016
US Democracy began as a great Movement. It

became a Business. Now it is just a Racket.
Marc Faber
The Monthly Market Commentary Report
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© Copyright 2016 by Marc Faber - All rights reserved
Dr. Marc Faber Market Commentary November 1, 2016
US Democracy began as a great Movement. It

became a Business. Now it is just a Racket.
“Yes, how many times can a man turn his head

Pretending he just doesn’t see?
The answer my friend is blowin’ in the wind;
The answer is blowin’ in the wind.”
Bob Dylan (1941- “Blowin’ in the Wind”
“For the past few decades, the glitterati and elites have
debunked claims of systemic corruption, media collusion with
elites and polling bias. The beautiful people ridiculed the less
fortunate for delusionally clinging to conspiracy theories. Now,
the Campaign of 2016 has exposed all the equivocations and
corruptions of ‘the system.’ Long-held American principles and
beliefs have been shattered, including the rule of law and ‘equal
protection under the law’.”
Bill King
“There is absolutely nothing to be said for government by a

plutocracy, for government by men very powerful in certain lines
and gifted with 'a money touch,' but with ideals which in their
essence are merely those of so many glorified pawnbrokers:”
Theodore Roosevelt
“Governments use national animosities, foreign wars and the

glamour of empire-making, in order to...divert rising sentiment
against domestic abuses.”
J. R. Hobson
“The abuse of buying and selling votes crept in and money began
to play an important part in determining elections. Later on, this
process of corruption spread to the law courts. And then to the
army, and finally the Republic was subjected to the rule of
emperors.”
Plutarch (Historian of the Roman Republic)
“The men the American people admire most extravagantly are

the greatest liars; the men they detest most violently are those
who try to tell them the truth.”
H.L. Mencken
“It is interesting to note that humans readily recognize the evils of

dominance of a human over other humans when there is a tyrant
ruling others but fail to realize it when a group of elites dominates
them and they willingly submit to the manipulation and
oppression of that elite, many times via a façade of democracy!”
Jamaal al-Din M. Zarabozo
“The American Republic will endure until the day Congress

discovers that it can bribe the public with the public’s money.”
Alexis de Tocqueville
Our friend Sydney M. Williams (sydwilliams1@aol.com) who writes

excellent essays about economics and politics recently penned some interesting
observations under the title of “Change – It’s Blowing In The Wind.” Sydney was
introduced to me through an email by Laura Stein (a reader of this report). From
his essays, which I have been reading for years, I can tell that he is a kind hearted
and polite gentleman. He is also a patriotic and a highly intelligent American
citizen who is deeply concerned about the future of US society, given the course it
is in. Lastly, he has an almost encyclopaedic knowledge of literature and history.
He writes impeccably and in well nuanced terms but rather passionately also that
regardless
“Whether Donald Trump wins or loses in November, one thing seems
certain – change is in the air. There are many reasons for this: Wars in the Middle
East have forced millions to flee their homelands. Globalization, technology, and
the creative destruction they have brought has caused tens of thousands to lose
their jobs. Change can be both good and bad, but change is inevitable. Other
factors are also at work. Government has become larger, less accountable and less
representative. (In 1800, 32 Senators and 105 Representatives represented 5.3
million people. Today, 535 Congressional members of Congress represent 320
million people.) Have we become too large for representative government? I hope
not and I don’t believe we have. The Executive branch – via multiple agencies run
by unaccountable bureaucrats – has increased its power over the purse. Corruption
has become rampant, suggesting term limits for Congress may be one answer. The
Supreme Court has become politicized, as ideologies have replaced adherence to
the Constitution, at least from the perspective of those making appointments. The
absence of a military draft has rendered less meaningful universal concepts of
public service, self-sacrifice and patriotism. Universities have become sanctuaries
where students are provided “safe places” to protect them from “uncomfortable”
words and phrases. School choice is denied to all but the wealthy. Political
correctness has become the God before whom we genuflect. We apologize for past
sins rather than celebrate the benefits democracy and free-markets have wrought.
Globally, liberalism and capitalism are under attack, as are institutions that
have defined Western civilization for years – family; values; religious
organizations; community groups; the free flow of ideas in colleges and
universities. Our public schools no longer teach discipline, mutual respect and
the virtues of citizenship. White Americans are told to acknowledge their
‘privilege’ and are condemned for deeds done by previous generations, in very
different times. We are pompously instructed by ‘our betters’ to allow into the
country, without proper vetting, those who would destroy the culture that permitted
our society to blossom. Political elites live segregated lives, in gated
communities, with children in exclusive schools. They live lives unaffected
from the consequences of their policies. As Admiral Boom warns Bert in Mary
Poppins, ‘heavy weather brewing there!’
Amidst this turbulence, we should be careful for what we wish. We should
recognize how Western thought has served as ballast to our nation states, and we
should understand the unchanging nature of moral values. In his 1993 book The
Moral Sense, James Q. Wilson noted that it was in the West, and only in the West,
that freedom for all men became a fundamental moral principle. It didn’t happen
all at once, and it didn’t spread evenly. But the West is where it began. He wrote:
‘The kind of culture that can maintain reasonable human commitments takes
centuries to create, but only a few generations to destroy.’
We now see freedom slipping away bit-by-bit, as the state strengthens its
hand, using the tax code to benefit special interests and federal agencies to
promote favored businesses. We see odd bedfellows working together –
academia, mainstream media, Hollywood, elitist politicians, union and
business leaders, and bankers who freely migrate between Wall Street and K
Street – to maintain power and generate personal wealth. The possibility that
their comfortable place could be disrupted by the election of Donald Trump,
terrifies these elites. Mainstream media has decided that impartiality in
reporting news is less important than denying Trump the election. Universities
claim to be bastions for the free exchange of ideas, yet are overwhelmingly liberal,
with registered Democrats outnumbering Republicans twelve to one. We see civil
rights leaders whose self-interest supersedes any concern for those they purport to
represent.
But things are changing, and with it a backlash, in which the cure may be
worse than the disease. In 1995, Harvard political scientist Robert Putnam
published Bowling Alone, in which he made the case that Americans were no
longer the energetic joiners they had been in the 1950s – that they had become
detached from civic life and deprived of person-to-person social networks. In
Coming Apart (2012), Charles Murray described the economic divide and moral
decline of white Americans, contrasting the poor, white neighborhood of Fishtown
in Philadelphia to the fictional upscale town of Belmont. In Hillbilly Elegy (2016),
J.D. Vance tells his story of growing up in the small, rust-belt town of Middletown,
Ohio in the late 1990s and early 2000s. He writes of poor, white people who have
developed mistrust of government institutions, those who now form the base of
Donald Trump’s supporters. These are Hillary’s ‘deplorables’ and
‘unredeemables.’ Politicians have segregated the electorate into easily identifiable

groups, but have left out white middleclass and poor, men and women who once
held private sector union jobs – jobs that have been shipped offshore. They see
liberal politicians cater to blacks, Hispanics, gays and transgenders, yet ignore
what was once the backbone of the American workforce. They see Washington
require the Catholic Church provide contraception to female employees, yet the
same government discourage Catholic schools from offering school choice to
middle class and low-income families. They see a President unwilling to call
Islamic terrorists by name. They live in a country they no longer understand.
Across the globe, men and women have begun to stand up against elites
who control government, unions, banks and large businesses. People have
grown weary of the lies, the corruption and the self-dealing. Brexit in England
was manifestation of this unrest, as was the Republican nomination of Donald
Trump in the United States. (In contrast, the coronation of Hillary Clinton over
Bernie Sanders by Democrats, despite her lies and corruption, evidenced a desire
to maintain the status quo. Upcoming elections in France in April and the so called
constitutional referendum in Italy this December could be a referendum on the EU
or the “status quo” further still – ed. note.) No matter who wins or loses in
November, these events suggest an irreversible force moving across the West – a
blowing in the wind – that is questioning the assumed wisdom of elites who have
led us to this angry and dissonant place” (emphasis added in each instance).
MF: Williams makes a number of very pertinent observations and notes

that, the “Political elites live segregated lives, in gated communities, with children
in exclusive schools. They live lives unaffected from the consequences of their
policies.” This is an important point, which was perniciously addressed earlier by
Peggy Noonan in a Wall Street Journal article entitled, “How Global Elites
Forsake Their Countrymen.” [See WSJ of August 11, 2016; Noonan has an
outstanding writing style.] Pernicious here meaning, telling the way it is, a craft
lost on today’s reporters, journalists or essay writers. She explains that,
“Those in power see people at the bottom as aliens whose bizarre emotions
they must try to manage” and that, “This is about distance, and detachment, and a
kind of historic decoupling between the top and the bottom in the West that did
not, in more moderate recent times, exist.
Recently I spoke with an acquaintance of Angela Merkel the German

chancellor, and the conversation quickly turned, as conversations about Ms.
Merkel now always do, to her decisions on immigration. Last summer when
Europe was engulfed with increasing waves of migrants and refugees from Muslim
countries, Ms. Merkel, moving unilaterally, announced that Germany would take
in an astounding 800,000. Naturally this was taken as an invitation, and more than
a million came. The result has been widespread public furor over crime, cultural
dissimilation and fears of terrorism. From such a sturdy, grounded character as Ms.
Merkel the decision was puzzling—uncharacteristically romantic about people,
how they live their lives, and history itself, which is more charnel house than
settlement house.
Ms. Merkel’s acquaintance sighed and agreed. It’s one thing to be
overwhelmed by an unexpected force, quite another to invite your invaders in! But,
the acquaintance said, he believed the chancellor was operating in pursuit of ideals.
As the daughter of a Lutheran minister, someone who grew up in East Germany,
Ms. Merkel would have natural sympathy for those who feel marginalized and
displaced. Moreover she is attempting to provide a kind of counter-statement, in
the 21st century, to Germany’s great sin of the 20th. The historical stain of Nazism,
the murder and abuse of the minority, will be followed by the moral triumph of
open arms toward the dispossessed. That’s what’s driving it, said the acquaintance.
It was as good an explanation as I’d heard. But there was a fundamental
problem with the decision that you can see rippling now throughout the West. Ms.
Merkel had put the entire burden of a huge cultural change not on herself and
those like her but on regular people who live closer to the edge, who do not
have the resources to meet the burden, who have no particular protection or
money or connections. Ms. Merkel, her cabinet and government, the media and
cultural apparatus that lauded her decision were not in the least affected by it and
likely never would be.
Nothing in their lives will get worse. The challenge of integrating
different cultures, negotiating daily tensions, dealing with crime and
extremism and fearfulness on the street - that was put on those with
comparatively little, whom I’ve called the unprotected. They were left to
struggle, not gradually and over the years but suddenly and in an air of
ongoing crisis that shows no signs of ending - because nobody cares about
them enough to stop it.
The powerful show no particular sign of worrying about any of this. When
the working and middle class pushed back in shocked indignation, the people on
top called them ‘xenophobic,’ ‘narrow-minded,’ ‘racist.’ The detached, who
made the decisions and bore none of the costs, got to be called ‘humanist,’
‘compassionate,’ and ‘hero of human rights.’
And so the great separating incident at Cologne last New Year’s, and the
hundreds of sexual assaults by mostly young migrant men who were brought up in
societies where women are veiled—who think they should be veiled—and who
chose to see women in short skirts and high heels as asking for it.
Cologne of course was followed by other crimes.
The journalist Chris Caldwell reports in the Weekly Standard on Ms. Merkel’s
statement a few weeks ago, in which she told Germans that history was asking
them to ‘master the flip side, the shadow side, of all the positive effects of
globalization.’
Caldwell: ‘This was the chancellor’s way of acknowledging that various
newcomers to the national household had begun to attack and kill her voters at an
alarming rate.’ Soon after her remarks, more horrific crimes followed, including in
Munich (nine killed in a McDonald’s) Reutlingen (a knife attack) and Ansbach (a
suicide bomber).
The larger point is that this is something we are seeing all over, the top
detaching itself from the bottom, feeling little loyalty to it or affiliation with it.
It is a theme I see working its way throughout the West’s power centers. At its
heart it is not only a detachment from, but a lack of interest in, the lives of
your countrymen, of those who are not at the table, and who understand that
they’ve been abandoned by their leaders’ selfishness and mad virtue-
signalling.
On Wall Street, where they used to make statesmen, they now barely
make citizens. CEOs are consumed with short-term thinking, stock prices,
quarterly profits. They don’t really believe that they have to be involved with
‘America’ now; they see their job as thinking globally and meeting shareholder
expectations.
In Silicon Valley the idea of ‘the national interest’ is not much discussed.
They adhere to higher, more abstract, more global values. They’re not about
America, they’re about . . . well, I suppose they’d say the future.
In Hollywood the wealthy protect their own children from cultural

decay, from the sick images they create for all the screens, but they don’t
mind if poor, unparented children from broken-up families get those messages
and, in the way of things, act on them down the road.
From what I’ve seen of those in power throughout business and politics
now, the people of your country are not your countrymen, they’re aliens
whose bizarre emotions you must attempt occasionally to anticipate and
manage.
In Manhattan, my little island off the continent, I see the children of the
global business elite marry each other and settle in London or New York or
Mumbai. They send their children to the same schools and are alert to all class
markers. And those elites, of Mumbai and Manhattan, do not often identify
with, or see a connection to or an obligation toward, the rough, struggling
people who live at the bottom in their countries. In fact, they fear them, and
often devise ways, when home, of not having their wealth and worldly success
fully noticed. [A very apt definition and description indeed, in my opinion. – ed.
note.]
Affluence detaches, power adds distance to experience. I don’t have it fully
right in my mind but something big is happening here with this division between
the leaders and the led. It is very much a feature of our age. But it is odd that our
elites have abandoned or are abandoning the idea that they belong to a country, that
they have ties that bring responsibilities, that they should feel loyalty to their
people or, at the very least, a grounded respect.
I close with a story that I haven’t seen in the mainstream press. This week
the Daily Caller’s Peter Hasson reported that recent Syrian refugees being resettled
in Virginia, were sent to the state’s poorest communities. Data from the State
Department showed that almost all Virginia’s refugees since October ‘have been
placed in towns with lower incomes and higher poverty rates, hours away from the
wealthy suburbs outside of Washington, D.C.’ Of 121 refugees, 112 were placed in
communities at least 100 miles from the nation’s capital. The suburban counties of
Fairfax, Loudoun and Arlington—among the wealthiest in the nation, and home to
high concentrations of those who create, and populate, government and the
media—have received only nine refugees.
Some of the detachment isn’t unconscious. Some of it is sheer and clever

self-protection. At least on some level they can take care of their own” (emphasis
added in each instance).
MF: After the excellent diagnoses from Noonan and Williams, there’s some
more. For several years now, I have been reading my friend Jawad Mian’s Stray
Reflections. This is not to say that I agree with everything he says, but over the
years I enjoyed his views on markets (frequently very contrarian) and his thoughts
on life. In The Forgotten Man Jawad addresses the same concerns Williams and
Noonan dealt with above, but from an economic and financial perspective. I have
added some of my own views to his observations. Jawad Mian is Founder of Stray
Reflections (jawad@stray-reflections.com), an independent global macro
research and trading advisory with a focus on major investment themes. He lives in
Dubai.
October 2016
Stray Reflections
Jawad S. Mian, CFA, CMT
Managing Editor jawad@stray-reflections.com
The Forgotten Man

“Wealth comes only from production, and all that the wrangling grabbers,
loafers, and jobbers get to deal with comes from somebody’s toil and
sacrifice. Who, then, is he who provides it all? The Forgotten Man… delving
away in patient industry, supporting his family, paying his taxes, casting his
vote, supporting the church and the school… but he is the only one for
whom there is no provision in the great scramble and the big divide. Such is
the Forgotten Man. He works, he votes, generally he prays—but he
always pays. All history is only one long story to this effect: men have
struggled for power over their fellow-men in order that they might win
the joys of earth at the expense of others and might shift the burdens of
life from their own shoulders upon those of others.”
William Graham Sumner, The Forgotten Man (1883)
Yale University professor William G. Sumner warned us long ago not to

forget the man who is never thought of. Those ordinary working people, who are
“the victim of the reformer, social speculator and philanthropist”, are also
indispensable units of economic and political power. And after being neglected
for several years by corporate and political leaders alike, they are now rising
against the system.
It’s a global rebellion, sweeping across every continent with consequences
that are damning. The world has enjoyed an unprecedented run of peace, prosperity
and cooperation over the last twenty-five years, but now it looks like that might be
over. As reporter Matt O’Brien writes, “History doesn’t always move forward.”
How did we get here?
In the 1980s and 90s, a host of virtuous macro factors—globalization,

deregulation, strong demographics, technological advances, productivity growth,
and lower interest rates and raw material prices—underscored a powerful tailwind
for financial markets. The twin bull markets in bonds and stocks—and the
secular rise in corporate profits—resulted in a pendulum shift from labor to
capital.
This is largely because 1) the rich have a savings rate of over 25% and
disproportionately benefit from the rise in risk assets compared to the bottom 90%
who have a savings rate of less than 5%, and 2) companies did not pay workers the
real wage gains that should have reflected the rise in productivity (see Figure 1), so
real wages stagnated while corporate profits soared to record highs. [part of the
reason for the rise in wealth inequality are expansionary monetary policies, which
boosted asset prices – ed. note.] Thus began a long period where income shifted
away from workers and toward capital owners.
The Economic Policy Institute reports average worker compensation, adjusted for
inflation, rose from $48,000 in 1978 to just $53,200 in 2014, an increase of 11%.
CEO pay increased from $1.5 million to $16.3 million over the same period, or
997% (see Figure 2). Due to this unequal growth, average top CEOs now make
over 300 times what typical American workers earn. In 1978, the difference was
only 30 times.
Figure 1: US Labor Productivity versus Real Hourly Pay, 1950 – 2015
Source: Minack Advisors
China’s entry into the World Trade Organization in 2001 marked another
important phase. The increase in the global supply of labor boosted living
standards in emerging economies, but devastated the economic fortunes of
workers in the developed world by driving down real wages even further.
Labor share of national income plunged as a result (see Figure 3).
Figure 2: Percent Change in CEO Compensation, S&P 500, and typical

Worker Pay, 1978 – 2014
Source: Economic Policy Institute
Figure 3: US Labor Share of National Income, 1990 – 2015
Source: David Rosenberg, Gluskin Sheff
Meanwhile, as costs of education, healthcare, childcare, and housing kept rising,

households increasingly turned to debt to maintain living standards and keep up
with the wealthier. America’s unprecedented credit boom thus helped conceal
the worrying trend in income disparity.
For a time, economic growth was vibrant and workers experienced a rise in wealth
levels due to the surge in house prices. But once the credit bubble burst in 2008,
and the “American Dream” turned into a nightmare, it was no longer possible
to mask growing inequality. In times of economic difficulty, grievances grow and
tensions between the various income strata and interest groups in a society
escalate. Social cohesion is undermined as a result.
Ned Davis Research found the top 1% in the US (1.4 million individuals)
earned more annual income than the bottom 50%, which was not true until the last
decade. Net after-tax income of the top 1% is $907,000 per person, whereas the
bottom 50% earn just $14,500. The share of total US wealth owned by the top
0.1% (160,000 families) has also risen to almost equal the share owned by the
bottom 90% of families (see Figure 4).
And while America has the highest increase in income inequality among
developed countries, this is a global phenomenon. Half of the world’s wealth is
concentrated in the hands of just 1% of the global population. Just as Sumner
foretold, there is no provision for the forgotten man in the great scramble and the
big divide.
Wealth inequality has continued to increase since 2008. Unlike President
Roosevelt’s New Deal, which called for plans that build from the “bottom up” and
not from the “top down”, government and central bank policies since the crisis
have benefitted the rich and intensified the squeeze on the lower and middle
classes.
The Fed’s 2014 “Report on the Economic Well-Being of US Households” revealed
that only a third of Americans aged 18-59 had sufficient savings to cover three
months of expenses; 45% of Americans saved none of their income; and only 48%
could come up with $400 on short notice without borrowing money or selling
something. Around 46 million people qualify for food stamps today, up from 17
million in 2000.
Figure 4: Share of Total US Wealth Owned By the Top 0.1% of Families and
Bottom 90% of Families, 1913 – 2012
Source: Washington Center for Equitable Growth
To quote former banker and author Satyajit Das, “Many workers have been
reduced to the nouveau poor… they survive rather than prosper, in an
essentially subsistence existence.”
The feeling of hopelessness among those negatively affected is real and
powerful. Perceptions of social mobility—the capacity for people to better their
social position—have collapsed. And there is an increasing body of evidence, from
academic research to technology trends, suggesting that the worst-off have few
realistic opportunities to improve their lot.
A deep-seated discontent and lack of confidence in the financial and
political system means the forgotten man feels he has little to lose, and has
something to gain by destabilizing the status quo.
The public approval rating for US Congress is 20%, and it has remained
below 25% since 2009. Rather than inspiring vision for a brighter future and
advancing a long-term agenda for the benefit of the people, both parties have
waged destructive short-term warfare against each other. Politics has turned into a
money-grab and politicians are no longer trusted to do what is right (see Figure 5).
Corporate CEOs are also reviled for their unabashed focus on profit over
people, especially with soaring executive compensation. In a related sign of
unscrupulous behavior, the Dodd-Frank financial reform made the CEO-worker
pay ratio disclosure mandatory in 2010. But SEC officials dragged their feet on
implementation for five years. Regulators are seen as being in cahoots with the
business establishment, rather than serving the people.
Figure 5: Trust In Government By Political Party, 1958 – 2015
Source: Economic Policy Institute
The populism we’re seeing today is the result of global economic forces that
have been decades in the making. Rising inequality has gone hand-in-hand with
rising political polarization. Widespread economic dislocation leads to a steady
debasement of society as our collective sense of safety gives way to paranoia,
cynicism, mistrust and self-interest. The concern is populism has a record of
undergirding very destructive leaders and movements.
Richard Batley of Lombard Street Research puts America’s populist swing in
historical context:
The deflation that followed America’s return to the gold standard after the
Civil War led to the formation of a self-declared ‘People’s Party’ that keenly
contested several presidential elections; unease about Chinese immigration was
rife and in 1882 Congress even passed the Chinese Exclusion Act—the only
act ever to limit US immigration on racial grounds. By the late 1890s inflation
had returned and in 1907 the People’s Party was disbanded.
All it takes is for an ego-driven personality like Donald Trump to exploit any
sense of unease and insecurity we may feel to attract support and get a rise out of
the population. History shows this is how so many dictators came to power. It
doesn’t matter if our fears make sense—what matters is that they promise to take
care of the thing we blame for putting us in our precarious state.
In Nazi Germany, the ‘subversive’ Jews were portrayed as responsible for
all of society’s ills. In the case of Brexit, it was European immigration, and for
Trump, it started out as Mexicans, Muslims, and China. But now, he runs a more
effective strategy by focusing on the ever-widening economic chasm and class
divide between the intellectual elites and the average person.
Hillary Clinton’s “basket of deplorables” remark about Trump’s supporters
shows the obliviousness of the upper class. Her snobbish connotation is analogous
to the famous phrase “Let them eat cake”, commonly attributed to French Queen
Marie Antoinette, which reflected her disregard for the peasants at a time they
could not even afford bread. Or the ancient Chinese emperor who, being told that
his subjects didn’t have enough rice to eat, replied, “Why don’t they eat meat?”
Trump’s appeal is an emotional one. This is why all of the fact checking in
the world and obscene comments don’t change peoples’ minds about him. It’s why
we think the odds of Trump winning in November are higher than what many
observers expect (see Figure 6), despite everything that he has done wrong in the
past several months and the especially strong period of media bashing.
Figure 6: Odds of a Donald Trump US Election Victory According to

Predictwise, 2016
Source: Nordea Markets
We can distill our thoughts on the US election to a few key observations:
1) About 20% of the electorate remains undecided, far higher at this stage in
the campaign than the 12% undecided four years ago. This favors Trump.
2) Minority voters are 35% of the electorate in this election, and they are well
represented in the key swing states. This favors Clinton, as minorities dislike
Trump.
3) America’s largest generation in the electorate is now Millennials. They

prefer Clinton to Trump, but the question is, will they turn out to vote? It is
one thing to be eligible to vote and another entirely to cast a ballot.
Of voters aged 18-24, only 64% went to the polls for the UK referendum, versus
90% of over-65s. As a result, even though an overwhelming majority of young
voters voted against Brexit, the ‘Leave’ campaign narrowly won. Many millennials
must now live with the consequences of an outcome they strongly opposed (See
Figure 7).
Figure 7: Brexit Vote Results By Age Group And Life Expectancy
Source: YouGov
Could Brexit spark the American youth to turn out to vote in droves come
November? This may be the last US election dominated by Boomers and prior
generations. Millennials and Gen Xers can match a turnout rate of 70% among
older voters with a turnout rate of 54.5%. According to Pew Research, this level of
turnout between the two younger generations seems plausible based on past
elections (see Figure 8). In the 2004, 2008, and 2012 election, the turnout rate was
54.2%, 56.6%, and 53.9%, respectively.
When we combine minorities and millenials, Trump has little chance of victory.
But if we consider the high number of undecideds, anything can happen.
Remember the forgotten man.
Remember my forgotten man?

You put a rifle in his hand
You sent him far away
You shouted ‘Hip-hooray!’
But look at him today.
Remember my forgotten man?

You had him cultivate the land
He walked behind a plow
The sweat fell from his brow
But look at him right now.
- The Gold Diggers of 1933
Figure 8: Voter Turnout Rates In Previous Presidential Elections By

Demographic Group, 1980 – 2012
Source: Pew Research

Investment Observations
Whereas the US election is too close to call, the implication for markets is a
lot less uncertain, regardless of the outcome. For decades, capital owners have
been over-compensated and over-rewarded at the expense of labor, but now
the tide is turning. The structural theme for investors is that the cycle of
wealth creation is over, and a long cycle of wealth redistribution is just
beginning.
The political and economic elites can no longer put off the demands of the
public for a bigger share of the economic pie. The populist resurgence, reinforced
by the Brexit vote, is a wake-up call: reflate growth, raise wages and reverse
income inequality or be voted out of office. This means the world in the future will
tend towards less globalization, tighter immigration, higher minimum wages,
higher top marginal tax rates, accommodative monetary policy and higher fiscal
expenditures. Although these economic policies will make developed economies
less competitive in the long run, the initial combination of higher wages and
higher government spending will support growth, sentiment and risk assets.
It is no longer necessary for bad things to happen before policymakers act more
aggressively to placate an angry electorate. This is good for global growth and
implies a lower political risk premium, which, in turn, warrants higher asset
prices. [I am far less certain about this point.]
Making Everyone Feel Great Again

The dangerous imbalance in the distribution of wealth and income needs urgent
attention to quell growing populism and improve growth prospects. The decline in
the labor share of income has led to a persistent shortage of aggregate demand
(see Figure 9).
Anatole Kaletsky, award-winning journalist and economist, explains how income
inequality causes economic stagnation:
“If too much of the income created by capitalism’s capacity to
increase production flows to people who are already rich and likely to save
rather than spend, then crises of under-consumption become almost
inevitable, as described by Karl Marx in Das Kapital and analyzed more

rigorously by John Maynard Keynes in the 1930s. The only way to avert
such crises is to create financial systems that recycle excess incomes from
rich savers to poorer consumers via a buildup of debt.”
Figure 9: Cumulative Impact on Consumption From Changes in the

Distribution of Labor Income, 1972 – 2015: Inequality has suppressed
Aggregate Demand
Source: BCA Research
MF: I need to point out that Kaletsky belongs to the great neo-Keynesian
interventionists a la Paul Krugman, Larry Summers, Paul McCulley, Ben
Bernanke, etc. who believe in that debts don’t matter, and that asset bubbles and
money printing are good for economic growth. The idea that, “to create financial
systems that recycle excess incomes from rich savers to poorer consumers via
a buildup of debt” would avert a crisis is complete nonsense. Regular readers of
the report and those who know the trees from the forests generally are very well
aware of this fact. Wealth and income inequality are largely – but not only - a
function of failed fiscal and expansionary monetary policies, which Kaletsky
always favored. As Williams so succinctly pointed out above, the tax code benefits
special interests and federal agencies to promote favoured businesses, and wealthy
people who can employ an army of lawyers and accountants in order to bring down
their tax rate to almost zero. Highly expansionary monetary policies lead to
excessive debt growth. The excessive debt inevitably leads to a credit crisis, which
hurt the lower income recipients and poor people badly (see Figure 10). The
wealthy people actually benefit from the crisis because it allows them to purchase
assets at the distressed prices from the poor who are forced to sell these assets due
to bankruptcies, foreclosures, margin calls, need of cash since half the population
can’t even come up with an emergency $4oo or so, etc.
Furthermore, I wonder what Kaletsky (he belongs to the kind of pseudo-elite
Noonan was talking about, and fits perfectly well with Martin Wolf at the FT)
would say about the close correlation between “Pay in Finance & Economy-Wide
Leverage” (see Figure 11).
Figure 10: The uneven Recovery in Household Wealth, 2007 - 2013
Source: Larry Lindsey, The Lindsey Group, Federal Reserve’s Survey of

Consumer Finance and Flow of Funds
Figure 11: US Relative Pay in Finance & Economy-Wide Leverage, 1925 -

2016
Source: Gerard Minack, Minack Advisors, BEA, Federal Reserve
In this case, “to create financial systems that recycle excess incomes from rich
savers to poorer consumers via a buildup of debt” does not seem to work. In fact
the prime beneficiaries from a debt build-up are the financial sector, large asset
holders, and in the case of government debts, the bureaucracy.
Now back to Jawad:
Demographic changes portend lower demand for debt than in previous cycles. And
to the extent that consumers are taking a more realistic and cautious approach
toward debt—as the scars from 2008 are still not a distant memory—we are
unlikely to see them use credit to fuel spending. This should be viewed as a
positive trend as households are rebuilding savings and repairing their balance
sheets. [I am not sure that, “demographic changes portend lower demand for debt
than in previous cycles. I would argue that strong government debt growth will
offset any slowdown in household debt growth.]
There is a growing recognition that the shortage of aggregate demand is
a reflection of many years of weak income growth. To correct some of our
imbalances, companies must reward workers more to boost confidence and growth.
In a New York Times op-ed, JPMorgan CEO Jamie Dimon wrote, “A pay increase
is the right thing to do.”
We are seeing encouraging signs wages will start to rise more generally to
help solve some of the broader societal concerns about inequality and income
stagnation. Walmart, America’s largest private employer, plans to spend about $1
billion a year to raise the pay of all its employees. Costco announced that it will
raise wages for entry-level works for the first time in nine years. Target, Starbucks,
McDonald’s, TJ Maxx, IKEA, Gap, Aetna, JPMorgan, and Wells Fargo have also
announced wage increases.
As efforts to raise the federal minimum wage from $7.25 an hour have been
stalled by Congress repeatedly, several states and cities are acting on their own to
raise minimum pay rates. California, New York, and the District of Columbia have
recently passed bills to raise their minimum wages to $15 per hour (see Figure 12).
The highest rate of job growth by small businesses is occurring in states and cities
with the highest public mandated minimum wages, which is a great sign.
The policy shift to promoting higher wages is global. Based on data from 75
countries in Hay Group’s database, workers are expected to see real wage increases
of 2.5% in 2016—the highest in three years.
The immediate investor concern is that a higher wage bill will hurt profit margins,
and thus will be bad for equities. We beg to differ.
Our take is that an increase in wages would not occur in a vacuum. By
enriching consumers, it would coincide with better consumption growth and an
improvement in selling prices. The implication is that cost-push pressures may not
be large enough to undermine profit levels (especially if corporate tax rates are
lowered).
History shows that margins can remain at elevated levels for several years
and don’t actually drop sharply until a recession develops. As assessed in these
pages, we deem the risks of a US recession to be low.
Figure 12: US Minimum Wage Increases By State

Mandatory minimum Wage Increases may also place upward Pressure on
Wages (as of April 11, 2016)
Source: BEA, BLS, Economic Policy Institute, Goldman Sachs
Hedge fund manager Hugh Hendry interprets this paradigm shift to higher worker
pay as the re-emergence of the “Henry Ford” option at the corporate and
government level. Seven years after the Panic of 1907, when, like 2008, the stock
market fell 50% and the economy entered a recession, Henry Ford doubled the
wages of his employees at Ford Motor Company (see Figure 13). Rather than
profits collapsing, the opposite happened.
We believe investors are underrating the economic tailwind of rising wages,

especially as it is occurring against a backdrop of an already high savings rate
(5.7%) and low oil prices. This is bullish for stocks.
Figure 13: Front Page Of The Detroit Journal, 1914
Source: The Detroit Journal
The End of Fiscal Conservatism
Deficits around the world have been contracting since 2010, which has prolonged
the global economic malaise. Fortunately, the political shift-to-the-left of the
economic spectrum heralds an end to the era of fiscal conservatism. The public
rallying cry is for prosperity, not austerity. Fiscal austerity is being jettisoned in
favor of stimulus, a missing complement to accommodative monetary policy.
Justin Trudeau pledged to boost government spending, which won him the
Canadian election. Theresa May, the new prime minister of England, has abrogated
George Osborne’s previous target of achieving a budget surplus by 2020. Francois
Hollande secured the European Commission’s blessing for once again
overshooting the 3% deficit target. Italy’s Matteo Renzi wants to explore the fiscal
flexibility to recapitalize banks and re-build from the tragic earthquakes. China’s
budget deficit for 2016 has already exceeded the government’s 3% estimate, and
Beijing has clearly signaled that it is willing to spend more to manage the growth
slowdown. The Modi government in India has appointed a committee to review
fiscal policy even though the fiscal deficit was running at 6% last fiscal year.
MF: Needless to say, this is an issue over which I completely disagree with
Jawad. First of all, deficits around the world have not been “contracting” (see
Figure 14). Maybe in one or the other country deficits have been coming down as a
percent of GDP (in Europe and the US) but even that is not entirely clear because
of the opaque budget accounting by governments, which does not take sufficiently
into account their unfunded pension fund and future healthcare, and social security
liabilities. Just like the apple of all eyes – Tesla, didn’t take all its expenses on the
book for the 3rd quarter to show a slight profit by the accountant’s sleight of hand -
well, so are the government’s book keepers not being wholly honest as well.
Figure 14: Debt by Sectors in the Advanced Economies, 2000 – 2014
Source: McKinsey & Company
As can be seen from Figure 14, government debt as a percentage of GDP in

the advanced economies continued to expand well after the /2008/2009 recession
had ended. There is another pertinent reason to be cautious about the notion that
deficits have come down: there is a big difference between the increase in
government debt and the deficit (see Figure 15).
Figure 15: Change in Gross Federal Debt versus Federal Budget Deficit, 1956
- 2016
Source: Lacy Hunt, Hoisington Management
According to Lacy Hunt, “this difference between the increase in the deficit
and debt is not a one-off fiscal policy event but instead part of an historical pattern.
From 1956 until the mid-1980s, the change in gross federal debt was always very
close to the deficit. However, over the past thirty years the change in debt has
exceeded the deficit in 27 of those years, which served to conceal the degree to
which the federal fiscal situation has actually deteriorated. The extremely large
deviation between the deficit and debt in 2016 illustrates the complex nature of the
government accounting” (emphasis added). I might add that it also illustrates how
the US government “manages” economic statistics (emphasis added).
Jawad: Hillary Clinton and Donald Trump have both promised to adopt a
major infrastructure investment program in the spring of 2017 to overhaul
deteriorating infrastructure quality (see Figure 16). Clinton has proposed a $275
billion five-year plan and said recently that she “intends to add to that package by
proposing additional measures to invest in infrastructure.”
Figure 16: Deteriorating Global Infrastructure Quality (1-7 score, 7=best),

2014/2015 versus 2006/2007
Source: Bank of America Merrill Lynch, IMF
By helping countries reissue bonds and re-profile debt at lower rates, slashing
their interest payments, global central banks have opened up meaningful
fiscal space to increase government spending.
It is estimated the collapse in sovereign bond yields has saved governments

around the world over $500 billion in annual interest expense. Global interest
payments as a share of GDP have fallen from a high of 11% in 2008 to 7%, despite
swelling debts. According to Société Générale, roughly 40% of the reduction in
Eurozone budget deficits over the last three years has been driven by lower
borrowing costs.
The US government’s interest expense is $218 billion, only slightly higher than
in 2002 even though public debt has risen from $6 trillion to $20 trillion since
then. This is because the effective interest rate on the debt has dropped from
5.7% to 2.2% over this period.
MF: This is factually correct, but the question really is whether this
“bonanza” is actually desirable. Because interest rates came down, government
debts could grow strongly and nobody “suffered” (see Figure 17). This allowed
governments to spend freely (also on costly and senseless wars in the case of the
US) and to increase all kinds of social programs, which may have had a rather
negative impact on employment growth.
Figure 17: Zero Short-Term Interest Rates have enabled Governments to

increase their Spending, 1986 - 2016
Source: Ed Yardeni, www.yardeni.com
As can be seen from Figure 16, US interest payments on the government debt are
no higher than in 1995 although government debt is up almost 5-times since then.
As I have explained in earlier reports, we do not need larger but smaller
governments, less regulation and fewer complex laws, which hamper the formation
of new companies and favour large companies, which can afford an army of
lawyers, auditors, accountants, and consultants to navigate through the regulatory
jungle. [Oscar Wilde “The bureaucracy is expanding to meet the needs of an
expanding bureaucracy.”] In earlier reports, I have also discussed several times the
shrinkage of new business formations. The downtrend clearly indicates a less
entrepreneurial economy (see Figure 18).
Figure 18: The Rate of Startup Formation has been trending down in the US
for Decades: Share of private US Firms that are less than one Year old, 1977 –
2014
Source: Commerce Department, The Wall Street Journal
The other question regarding the unprecedented government debt expansion

is what will occur when finally interest rates increase meaningfully. Interest
payment on government debts could easily double and lead to sharply higher fiscal
deficits.
Jawad: According to author and experienced markets observer Peter Tasker,

“With the bond markets offering the most favorable borrowing terms in history, it
is highly likely that governments will turn to more active fiscal policies. When the
markets are begging governments to borrow more money, it seems rude to refuse.”
Spain has successfully issued 50-year debt, and Ireland, Belgium, and Mexico have
all issued 100-year debt. The average duration of US debt is under three years
currently, and the longest maturity debt is the 30-year bond. Harvard economist
Kenneth Rogoff argues the US should borrow at longer horizons to extend its
duration and have a less risky stream of future interest obligations.
As we wrote in our December 2015 issue, we have already had a de facto
debt monetization through QE, although it is not widely recognized by investors or
the broader market. For all practical purposes, government debt owned by central
banks has been ‘retired’. The ultimate end for QE is a maturity extension or
perpetual rolling of debt. The upshot is global debt levels have significant room to
climb and governments can sustain many years of larger budget deficits.
The fiscal thrust over the next several years is going to be meaningful.
Research from IMF suggests that the effect of the fiscal multiplier at the zero lower
bound exceeds the ‘normal times’ multiplier by a large margin (see Figure 19).
Fiscal expansion will thus provide an unqualified economic stimulus, as interest
rates will remain low for a very long time. And with fiscal policy and monetary
policy no longer pulling in opposite directions, this means there is plenty of scope
for positive growth surprises. The medium-term investment implications are: A
global pivot towards fiscal policy is positive for growth and inflation. And it
supports our view that deflation tail risks are in remission. Equity market
leadership has already shifted away from defensive sectors toward cyclical
ones in anticipation of this theme. Since the Brexit low, the materials and
industrials sectors have risen 12% and 7%, respectively, while the utilities and
consumer staples have lost 8% and 2%, respectively. We will use a correction to
initiate new positions in Industrials and infrastructure stocks (see Figure 20).
Figure 19: Percentage Change in GDP after one Percentage Point Increase in
Fiscal Spending
Source: Lombard Street Research
As governments begin to ramp up spending, it will likely boost the prices of

commodities as investors position for greater infrastructure investment. This
should extend the current bull run in emerging markets and lead to further upside
in oil prices.
Bonds can experience significant volatility as the policy environment turns more
reflationary. But a nasty spike in yields is not in the cards given the scarcity of
‘safe’ collateral.
Looking at economic performance and inflation trends, it will become

increasingly difficult to justify continuing with emergency monetary settings.
This makes a US dollar overshoot phase more likely.
Figure 20: Relative Strength of Infrastructure Stocks Compared With

Changes in Government Spending, 2000 – 2016
Source: GaveKal Research
I Am
We are all just a car crash,
a diagnosis,
an unexpected phone call,
a newfound love,
or a broken heart away
from becoming a completely different person.
How beautifully fragile are we
that so many things
can take but a moment
to alter who we are

forever?
Samuel Decker Thompson, “Fragile”
MF: Above Jawad mentions that, “As governments begin to ramp up spending,
it will likely boost the prices of commodities as investors position for greater
infrastructure investment” and that, “This should extend the current bull run in
emerging markets and lead to further upside in oil prices.”
I fully agree with Jawad about this point. Commodities have likely bottomed out
and will likely outperform financial assets in the next few years (see Figure
21).
Figure 21: Reuters/Jefferies CRB Index, 2012 - 2016
Source: www.stockcharts.com
My friend Michael Belkin who called the bottom in gold shares late last year and
still remains very positive about the sector opines that, “Inflation is lurking.
Commodity prices bottomed in dollars in January, the GSCI commodity index is

+38% from its January 20, 2016 low. US inflation has been creeping higher for a
year, the core CPI has been over 2% (the Fed’s target) for 11 months now. The
Federal Reserve has been asleep at the wheel, with zero interest rates for eight
years (since December 2008).” I fully agree because when “inflation” becomes
more visible the Fed and other central banks will unlikely push up interest
rates sufficiently in order to tame the coming “Inflation-Frankenstein” they
created with their ultra-expansionary monetary policies over the last eight
years. Therefore, even if the global economy weakens further, as I believe it will,
commodity prices could increase driven purely by excessive liquidity. Belkin and
my preference are gold, silver and platinum mining stocks, but I could also
envision a scenario where industrial commodities such as copper and oil would
rebound strongly. Some readers may think that mining stocks are ahead of
themselves and that the upside from here is limited. Doug Casey, however,
highlighted recently based on research by Sprott Inc. that the average return of
gold shares in bull markets is around 500% (see Figure 22).
Bloomberg recently pointed out that, “If you want to get a sense of just
how insecure investors are feeling, consider this: Investors worldwide are holding
more than $50 trillion in cash. That's according to BlackRock President Rob
Kapito, who mentioned the startling statistic in an earnings call on Tuesday. He
noted that up to 60 percent of clients' holdings are now sitting in cash, according to
BlackRock research”. “Depending upon changes in interest rates and changes in
equity volatility, a lot of that money can come into motion, he added” (see Figure
23). Personally, I believe that some of that money will flow into precious metals
and related stocks. A while ago I mentioned two companies –Ivanhoe Mines (IVN
CN) and Northern Dynasty (NAK) as long-term options on precious metals (see
Figure 24).
Figure 22: Gold Mining Companies’ Average Return in Bull Markets from
Cycle Through to Peak is 500% (Gold/Silver mining Stocks, 1970 - 2016
Source: Sprott Inc., Doug Casey, Bloomberg
Figure 23: Investors are holding a swelling Amount of Cash that’s bigger than
the World’s largest Economies (Cash compared to GDPs)
Source: Bloomberg
Both companies, Ivanhoe and Northern Dynasty, no doubt are risky investments
but likewise their stocks could increase several fold as well. For this reason I called
them options on precious metal prices going up strongly and on company specific
favorable mining conditions.
Figure 24: Northern Dynasty Minerals (NAK), 2012 – 2016
Source: www.stockcharts.com
Bloomberg’s Lisa Abramowicz, (October 19, 2016) further notes that, “BlackRock
knows a lot about big sums of money. The New York firm now manages more
than $5 trillion, an amount that's bigger than the Japanese economy. But it's hard to
comprehend a concept like $50 trillion, even for the world's biggest asset manager.
That's almost three times the annual economic output of the U.S., the world's
biggest economy. It's more than twice as much as the balance sheets of all the
biggest central banks combined. If even a fraction of this cash starts to move into
stocks, bonds or other assets, it could have a significant effect. The existence of
this huge buffer is already making a big mark. It explains why the market hasn't
dropped meaningfully, despite some considerable jitters, and why asset prices may
continue to rise well beyond levels that seem rational. Billions of dollars are just
waiting for a chance to pounce on anything that looks remotely like an
opportunity. U.S. distressed debt managers have a record $56 billion to invest,
according to research firm Preqin. But there just aren’t enough bad loans and
bonds for them to buy, as Bloomberg's Jodi Xu Klein wrote in an article on
Tuesday.
Fund managers surveyed by Bank of America Merrill Lynch have been
building their cash cushions to levels that haven't been higher since November
2001, Bloomberg's Sid Verma and Luke Kawa wrote Tuesday. Why are investors
hoarding so much money? BlackRock's CEO Larry Fink weighed in on the
question Tuesday: ‘I don't believe the people are sitting there because they're just
worried about the next event. A lot of people just don't feel like investing has been
that fair to them.’
Unlike complicated securities or balance sheets, cash is perceived as safe. It
gives investors the ability to move quickly to take advantage of opportunities that
come up. But it provides absolutely no extra income, nor the delight of purchasing
property that owners enjoy living in or investing in a business that supplies desired
or needed goods and services. [Not all properties provide a lot of joy – ed. note.]
And if inflation ever kicks in, this money will essentially lose value. Perhaps no
extra income is better than the less-than-nothing promised by government bonds in
Europe and Japan. But cash is an unsustainable proposition for pensions,
retirees, insurance companies and many others who expect to earn some sort
of return on their assets. This money is poised to rush in at the mere hint of a
prolonged selloff, which means it will act as a buffer against just such a
thing.”
Personally, I am less sure that investors around the world are really sitting
on $50 trillion in cash. But even if cash is ‘just’ $10, $20 or $30 trillion, it is still a
colossal amount of ammunition for driving asset markets much higher. Moreover,
my private banking friends confirmed to me that some clients are holding 100% of
their money in cash (please note that most of these cash holders own substantial
assets in their home countries that is invested in their own businesses, in real estate
and in local equities). Bloomberg rightly noted above that, “Cash is perceived as
safe.” But, as I have explained in earlier reports, cash may not be as safe as is
perceived because of its loss of purchasing power in asset inflationary times.
[Voltaire: “At the end fiat money returns to its inner value—zero.]
More so, it is a fact that the insane academics and central bankers are
seriously thinking about introducing far more negative interest rates (minus 3% -
5% or more). Therefore, as Jawad posits, stocks could still move up. However, I
believe as Jawad does that the leadership in equity markets will change. Mish
Shedlock recently quoted Jeff Macke of CNBC as saying that Facebook, Amazon,
Netflix, and Google, collectively named (FANG) accounted for over 90% of S&P
500 market cap gains since December 2014 (see Figure 25). Given that these
companies, and stocks such as biotechnology, high tech and over-hyped, over-
loved and over-promoted names such as Tesla are widely owned by the momentum
playing hedge funds, I regard them as well as the entire US stock market as
vulnerable. Unless the richly-valued US stock market can rebound shortly, we
may have to consider then that the entire rally above the May 2015 high (2,134 for
the S&P 500) as a false breakout (see Figure 26). False upside and downside
breakouts are usually followed by a sharp reaction in the opposite direction – that
is if the current upside breakout turns out to “fake” then the downside could be
sharp. Needless to say, if the US market drop towards the February 2016 low at
1,810 on the S&P 500 (see Figure 26), the Fed will most likely embark on QE4
and start buying equities in order to support stock prices.
Therefore, I believe that investors should focus on avoiding (or shorting)
selected stocks such as the momentum stocks and hedge fund favourites of the last
few years (FANG stocks, high tech, social media, biotech, etc.) and invest in gold,
silver and platinum mining companies (ABX, NEM, PAAS, GFI, NCM AX, FCX,
etc.), oil and related stocks (HAL, DO, TOT, STO, BP), agricultural and plantation
companies, and emerging markets, which correlate closely with commodity prices
(Brazil, Russia, etc.).
Figure 25: FANG Stocks, 2014 – 2016: accounting for 90% of S&P 500
Market-Cap Gains since December 2014
Source: Mish Shedlock, Jeff Macke, CNBC
Figure 26: S&P 500, 2014 – 2016
Source: Ed Yardeni, www.yardeni.com
As I mentioned when I introduced Jawad at the beginning of this report, I also

enjoy his personal observations. He concludes his report with the following:
Jawad: Tom Shadyac seemed to have it all—a multimillion-dollar career directing

films like Ace Ventura, The Nutty Professor, and Bruce Almighty, a 17,000-square-
foot art-filled mansion, fancy cars, invitations to extravagant parties and
friendships with other famous people. It was a life many people today dream about
because it matches our modern culture’s definition of success and achievement.
Tom had everything that he was taught was a measure of the good life, yet he was
no happier. There was a nagging feeling of emptiness inside. Then, in 2007, Tom
became gripped with a crippling post-concussion syndrome after a serious bicycle
accident.
This was life changing.
“Facing death can be a powerful motivator,” he later explained. “I began to

wake up to principles… I saw through the veil.” Already disillusioned with the
way society was organized, Tom sought to reorient and simplify his life. And he
felt compelled to share his journey from crisis to contentment in an engaging and
intellectually challenging documentary film called I Am.
In the film, Tom attempts to answer the two big questions that inhabited him:
What’s wrong with our world, and what can we do to make it better?
As he sets out with renewed vigor to identify the underlying cause of the world’s
ills, he explores the work of scientists, and the eternal wisdom of the great poets,
saints, and philosophers. He also interviews eminent thinkers and writers of the
day from Desmond Tutu to Noam Chomsky. His findings challenge our
preconceptions about human behavior and what we have widely accepted as the
“truth.”
First, it is scientifically proven that the entire human race is connected. String
Theory and Quantum Entanglement shows that this has more to do with the design
of the universe than the simple fact that we are all humans. We are all wired to be
compassionate and thus some of the key sources of deep contentment are having
many positive relationships, doing random acts of kindness, and serving others.
Second, the society is at fault for training us from an early age to be goal-
driven, instead of values-driven. These goals separate us and make us feel
competitive. And when we inevitably don’t meet our goals, we feel sad, upset,
angry, or tense.
Actually, cooperation, rather than competition and “survival of the fittest”, is

nature’s most fundamental operating principle. True human nature is to cooperate
and unite.
Third, Tom learned that the heart, not the brain, may be our primary organ of
intelligence, and that human consciousness and emotions can actually affect the
physical world. Yet we often denigrate the “emotional” heart for the “logical” and
“rational” brain.
God reveals, “I, who cannot fit into all the heavens and earths, fit in the heart of
the sincere believer.” And Rumi, in his poetry, implores God to open his heart in
the way that He causes the rose to expand in full-blown beauty, not his brain.
Fourth, and most important, part of what’s wrong with our world is that ours is a
culture in which the pursuit of pleasure and the acquisition of “things” are seen as
the ultimate measure of one’s happiness. This violates a fundamental law that all
of nature obeys and mankind breaks every day: Nothing in nature takes more
than it needs. And when something does, it becomes subject to this law and dies
off.
Tom narrates in I Am:
A tree does not take all of the soil’s nutrients, just what it needs to grow. A lion
does not kill every gazelle, just one. We have a term for something in the body
when it takes more than its share. We call it cancer.
The predicament of modern humanity, caught up in the quest for wealth and power
with an ever-growing addiction to materialism, is that humans often take far more
than they need by living excessively. Emerson would explain it thus, “A whole
generation adopted false principles, and went to their graves in the belief they
were enriching the country they were impoverishing.” Ignoring the wisdom of
St. Augustine, “Determine how much God has given you and take from it
what you need; the remainder is needed by others.” Or as Gandhi put it, “Live
simply, so others may simply live.”
Reflecting on his own awakening, Tom proclaims, “There’s nothing wrong

with making a lot of money. I was just taking in a lot more than I needed, and
this wasn’t good for me. I simply met myself at my needs.”
At the end of I Am, Tom tells the story of how when a newspaper invited essays on
the topic, “What’s Wrong with the World?” esteemed writer G. K. Chesterton
(1874-1936), often referred to as the prince of paradox, sent in the succinct
response:
“Dear Sirs:
I am.
Sincerely Yours,
G. K. Chesterton.”
We all have the power to be what’s right in the world.
In the end we all belong to God, and to Him we shall return.
Jawad S. Mian
11th October 2016 (emphasis added in most instances).
MF: Above we heard from Sydney Williams that, “Political elites live segregated
lives,” and from Peggy Noonan that, “Across the globe, men and women have
begun to stand up against elites who control government, unions, banks and large
businesses. People have grown weary of the lies, the corruption and the self-
dealing.” Jawad added that, “for decades, capital owners have been over-
compensated and over-rewarded at the expense of labor.” I agree with all these
views but what the analyses of Williams, Noonan, and Jawad lack is a more
thorough search for the causes of these problems.
Alexis de Tocqueville opined that, “The American Republic will endure
until the day Congress discovers that it can bribe the public with the public’s
money.” But where did the money come from with which Congress discovered it
could bribe the public? Well, in my opinion the US Federal Reserve played –
certainly in the last few years - a major role in this dirty little game. This is nothing
new: already Adam Smith noted that, “The problem with fiat money is that it
rewards the minority that can handle money, but fools the generation that has
worked and saved money.”
At the same time it would be an error to blame only “the elites who control
government, unions, banks and large businesses.” Plato observed that, “The price
of apathy towards public affairs is to be ruled by evil men” and Frank Kent opined
that, “The evils of government are directly proportional to the tolerance of the
people.”
My regular readers know that we are supporting three charities: Caravan to Class,
which is run by Barry Hoffner (www.caravantoclass.org), Projecto Mirador
(www.proyectomirador.org), which was founded and is run by Dee and Richard
Lawrence, and Childsdream (marc@childsdream.org) in Thailand and Southeast
Asia. I am enclosing brief updates on these charities.
‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐
Dr. Marc Faber

Suite # 801, The Workstation
43 Lyndhurst Terrace
Central, Hong Kong
Dear Marc:
As we approach the holiday season, a time of giving thanks, I want to again

express my tremendous gratitude to you and your readers for your continued
support for Caravan to Class and our mission of bringing literacy to the deserving
children of the fabled Timbuktu, Mali. I hope some of your subscribers may
consider, again, making a contribution to our 10th school construction project in the
village of Bantam during our yearend fundraising appeal.
https://www.globalgiving.org/projects/build-a-school-for-120-children-in-
timbuktu-mali-1/
By focusing on education in villages around Timbuktu, Caravan to Class is helping

to restore a legacy of scholarship during the 12th – 15th centuries in one of Africa’s
most historically significant places. This important history was chronicled both in
the 2015 Academy Award-nominated film Timbuktu and also the recently
published, and interestingly titled, Bad Ass Librarians of Timbuktu written by
Joshua Hammer.
With your support, we have been able to build nine schools in the past six years
and continue to support the operations of many of these schools. As a result,
through our collective effort, we are bringing French-based education to more than
1,500 children ages 6 – 12 years in Saharan Desert villages near Timbuktu. I was
there myself to see our Kakondji school inaugurated in February 2016. The
comment of a ten year girl told reflected the value of our work “one day soon, I
will be able to read an entire book to my mother, something she has never been
able to dream of doing”.
Caravan to Class is an all-volunteer registered 501(c)3 charitable organization I

founded in 2010 with the very focused mission of bringing literacy to the children
of villages around Timbuktu in Mali, West Africa. We do this by building schools
in carefully-selected villages, providing ongoing funding to pay teacher’s salaries,
and providing supplementary food and school supplies. We work through a local
NGO partner to vet proposed sites thereby assuring each school’s success.
Recently, Caravan to Class was awarded an important grant from Dining for
Woman, a large NGO with over 400 chapters globally, to expand our Female Adult
Literacy program to ten villages so that mothers, too, can know the joy of
achieving basic literacy.
We have just begun our fundraising campaign for our 10th school construction
project in the village of Bantam. Bantam was founded by a Tuareg woman in 1603
along the Niger river where, today, the principal activity is fishing and goat
herding. Bantam is a village of roughly 700 inhabitants more than 60% under the
age of 30 and a literacy rate of less than 10%. You can see a short video of our last
year’s school project in the village of Kakondji and an example of the school we
will build in Bantam to be finished by March 2017.
https://www.youtube.com/watch?v=SYlvekVaQyg
With a $20,000 match grant from the Meier Family Fund, we seek to raise $25,000
to fund the Bantam School project. Thank you for considering support for this
project as well as reaching out to your Gloom, Boom, and Doom subscribers.
Donations can be made via our fundraising campaign on Global Giving, the
leading online charitable giving website by using the following link:
https://www.globalgiving.org/projects/build-a-school-for-120-children-in-
timbuktu-mali-1/
Sincerely and with gratitude,
Barry Hoffner, Founder and Executive Director
www.caravantoclass.org
October, 2016
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Proyecto Mirador
www.proyectomirador.org
Smoky homes from cooking with wood are a major health and environmental
problem for rural families in Central America. Proyecto Mirador (PM) is a non-
profit organization that builds Dos por Tres smoke-free and reduced-wood
consumption cookstoves in rural Honduras. By ridding homes of toxic smoke from
indoor cook fires, Dos por Tres stoves create a cleaner, healthier living
environment for the family. Because the stoves reduce wood use by nearly half,
they save trees, improve family economics and reduce greenhouse gas emissions.
A Gold Standard certified carbon emission reduction project, Mirador has installed
120,000 stoves and prevented the release of nearly 1 million tonnes of carbon into
the atmosphere since inception. Mirador tracks every stove by GPS and uses
Salesforce.com to collect and organize extensive monitoring data to ensure proper
use and maintenance. The size of the problem? There are still 400,000 rural homes
in rural Honduras, not to mention the rest of Central America, that need stoves.
Name: Proyecto Mirador Foundation

Bank: Bank of America
Account nvvumber: 394001467183
Routing number: 011500010 (electronic funds transfer/ACH)
026009593 (wires)
SWIFT: BOFAUS3N (USD)
BOFAUS6S (Foreign Currency)
Address: Bank of America, N.A.
222 Broadway
New York, NY 10038

‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐
Marc Jenni
marc@childsdream.org
Child’s Dream Foundation

For over 13 years, we at Child’s Dream have put hundreds of thousands of children
through school all over Myanmar, Laos, Cambodia and Thailand. More than 300
educational facilities have been built so far and more than 700 young students are
kept in school thanks to our high school scholarships. We believe that promising
young adults need to be empowered to become real leaders and specialists,
ultimately triggering systemic change, leading to a better future. Our university
scholarship programme has a proven track record of creating change makers and
we are proud to play an important role for the betterment of thousands of remote
and neglected communities. Our achievements over the past 13 years have keep us
going and motivate us even further to excel.
But then, the path on which the world currently walks will not be sustainable much
longer. New ways are needed to ensure that our planet remains a home to all of us.
One such way is highlighted below.
With a monumental celebration in New York the United Nation’s new Sustainable
Development Goals were signed off by the heads of state on 25 September 2015.
Some of the 17 goals sound familiar; no poverty, zero hunger, good health and
well-being, quality education, and gender equality. But there are a few new
interesting ones; affordable and clean energy, sustainable cities and communities,
responsible consumption and production, and climate action. These new 17 goals
will largely dictate where, by whom and how the roughly USD 160 billion of
annual development aid will be utilized. Although these goals offer a fresh plan on
how to save the world, the main strategy for eradicating poverty remains the same;
growth. Since 1980 the global economy has grown by 380% but the number of
people living in poverty (living on less than USD 5 per day) has increased by more
than 1.1 billion. Many developing countries were completely left out and the
trickle-down effect did not happen. More growth, even if it would be fairer and
more equal, is not going to be sustainable. At the current levels of average global
consumption, we are already exceeding our planet’s bio-capacity. There is a
standardized unit called ‘global hectares’ that quantifies both the ecological
footprint of people or activities as well as bio-capacity of the earth. Right now our
planet only has enough resources for each of us to consume 1.8 global hectares
annually. People in the US and Canada consume about 8 global hectares while
Europeans consume 4.7. Therefore, instead of pushing poorer countries to ‘catch
up’ with rich ones, we should be thinking of ways to get rich countries to ‘catch
down’ to more sustainable levels. The developed countries should get inspired by
countries that have long life expectancy and a high level of happiness but consume
much less resources like Costa Rica, Peru and Ecuador. This does not mean that
we have to stop learning, improving and growing but we should be aiming at a

lifestyle that is geared towards quality instead of quantity. A lifestyle that focuses
on true human values and is more sophisticated than excessive consumerism that
leaves us unsatisfied. It is not about giving anything up or living a life of voluntary
misery but rather readjusting our own personal values and priorities. It is about
reaching a higher level of understanding and consciousness about what we are
doing here and why. So if we are truly interested in helping the poor countries to
develop, we need to learn how to share the planet’s limited resources and use them
more wisely. The pivotal question is are we willing to do this and can we learn
quickly enough how to live a happy life with less?
If you want to learn more about Child’s Dream Foundation and our work, please
visit our website www.childsdream.org or drop us an email at
info@childsdream.org. You can also join us on facebook under
https://www.facebook.com/childsdreamfoundation/.
Financial contributions are definitely welcome, so please visit us on
http://childsdream.org/donate/ to donate. We have a number of tax domiciles
around the globe, enabling you to deduct your donation from your taxable income.
Many thanks and we wish you all a very nice rest of the year!

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Dr.

Marc Faber Market Commentary November 1, 2016

US Democracy began as a great Movement. It

© Copyright 2016 by Marc Faber and www.gloomboomdoom.com - All rights

US Democracy began as a great Movement. It

“Yes, how many times can a man turn his head

Bob Dylan (1941- “Blowin’ in the Wind”

“There is absolutely nothing to be said for government by a

“Governments use national animosities, foreign wars and the

Plutarch (Historian of the Roman Republic)

“The men the American people admire most extravagantly are

“It is interesting to note that humans readily recognize the evils of

Jamaal al-Din M. Zarabozo

“The American Republic will endure until the day Congress

Our friend Sydney M. Williams (sydwilliams1@aol.com) who writes

‘unredeemables.’ Politicians have segregated the electorate into easily identifiable

MF: Williams makes a number of very pertinent observations and notes

Recently I spoke with an acquaintance of Angela Merkel the German

In Hollywood the wealthy protect their own children from cultural

Some of the detachment isn’t unconscious. Some of it is sheer and clever

The Forgotten Man

William Graham Sumner, The Forgotten Man (1883)

Yale University professor William G. Sumner warned us long ago not to

How did we get here?

In the 1980s and 90s, a host of virtuous macro factors—globalization,

Figure 1: US Labor Productivity versus Real Hourly Pay, 1950 – 2015

Source: Minack Advisors

Figure 2: Percent Change in CEO Compensation, S&P 500, and typical

Source: Economic Policy Institute

Figure 3: US Labor Share of National Income, 1990 – 2015

Source: David Rosenberg, Gluskin Sheff

Meanwhile, as costs of education, healthcare, childcare, and housing kept rising,

Source: Washington Center for Equitable Growth

Figure 5: Trust In Government By Political Party, 1958 – 2015

Source: Economic Policy Institute

Figure 6: Odds of a Donald Trump US Election Victory According to

Source: Nordea Markets

We can distill our thoughts on the US election to a few key observations:

3) America’s largest generation in the electorate is now Millennials. They

Figure 7: Brexit Vote Results By Age Group And Life Expectancy

Remember the forgotten man.

Remember my forgotten man?

Remember my forgotten man?

- The Gold Diggers of 1933

Figure 8: Voter Turnout Rates In Previous Presidential Elections By

Source: Pew Research

Making Everyone Feel Great Again

inevitable, as described by Karl Marx in Das Kapital and analyzed more

Figure 9: Cumulative Impact on Consumption From Changes in the

Source: BCA Research

Figure 10: The uneven Recovery in Household Wealth, 2007 - 2013

Source: Larry Lindsey, The Lindsey Group, Federal Reserve’s Survey of

Figure 11: US Relative Pay in Finance & Economy-Wide Leverage, 1925 -

Source: Gerard Minack, Minack Advisors, BEA, Federal Reserve

Now back to Jawad:

Figure 12: US Minimum Wage Increases By State

Source: BEA, BLS, Economic Policy Institute, Goldman Sachs

We believe investors are underrating the economic tailwind of rising wages,

Figure 13: Front Page Of The Detroit Journal, 1914

Source: The Detroit Journal

The End of Fiscal Conservatism

Figure 14: Debt by Sectors in the Advanced Economies, 2000 – 2014

Source: McKinsey & Company

As can be seen from Figure 14, government debt as a percentage of GDP in