If you're serious about getting rich, now is the time. We've entered a period of mass-produced pessimism, when bad news is everywhere, and the best time to invest is when optimists become pessimists.
The Weird Turn Pro
Journalist Hunter S. Thompson used to say, "When the going gets weird, the weird turn pro." That's true in investing, too: At the height of every market boom, the weird turn into professional investors. In 2000, millions of people became professional day traders or investors in dotcom companies. Mutual funds had a record net inflow of $309 billion that year, too.
In an earlier column, I stated that it was time to sell all nonperforming real estate. My market indicator? A checkout girl at the local supermarket, who handed me her real estate agent card. She was quitting her job to become a real estate professional.
As a bull market turns into a bear market, the new pros turn into optimists, hoping and praying the bear market will become a bull and save them. But as the market remains bearish, the optimists become pessimists, quit the profession, and return to their day jobs. This is when the real professional investors re-enter the market. That's what's happening now.
Pessimism vs. Realism
In 1987, the United States experienced one of the biggest stock market crashes in history. The savings and loan industry was wiped out. Real estate crashed and a federal bailout entity known as the Resolution Trust Corporation, or the RTC, was formed. The RTC took from the financially foolish and gave to the financially smart.
Right on schedule 20 years later, Dow Industrials and Transports struck their last highs together in July 2007. Since then, nothing but bad news has emerged. In August 2007 a new word surfaced in the world's vocabulary: subprime. That October, I appeared on a number of television shows and was asked when the market would turn and head back up. My reply was, "This is a bad one. The worst is yet to come."
Many of the optimistic TV hosts got angry with me, asking me why I was so pessimistic. I told them, "The difference between an optimist and a pessimist is that a pessimist is a realist. I'm just being realistic."
As we all know, things only got worse in early 2008, with the demise of Bear Stearns and the Federal Reserve stepping in to save investment bankers. In February, many of those optimistic TV (and print) reporters became pessimists -- and when journalists become pessimists, the public follows. By March, mutual funds had a net outflow of $45 billion as investors fled the market.
Surviving the Bad Times
Back in 1987, as savings and loans closed and investors' stock and real estate portfolios were wiped out, my wife, Kim, and I were living in Portland, Ore. Many people were depressed and hiding from the truth. The following year, I said to Kim, "Now is the time for you to begin investing."
In 1989, she purchased a two-bedroom, one-bathroom house for $45,000, putting $5,000 down and earning $25 a month in positive cash flow. Today, she owns over 1,400 units and -- because more people are renting than buying -- she earns hundreds of thousands a year in positive cash flow.
The period from 1987 to 1995 was a rough one, even for the rich. In his book "The Art of the Comeback," my friend Donald Trump writes about being a billion dollars down at the time. Rather than give up, he kept on fighting to survive. He and I often talk about how that period was great for character development.
Two-Year Warning
I believe we're through the worst of the current bust. I know there will be more aftershocks, and the news will continue to be pessimistic for at least two more years, possibly until the summer of 2010.
But the upside to this is that it gives us at least two years to do our market research and find the next big stock or real estate bargain. Before buying, I strongly suggest you study, read books, and take courses on your asset of choice. If your choice is stocks, take a course on stocks or options. If it's real estate, take a course on real estate. Now is the time to learn; not only will you know more than the average person and be in a good position when the market turns, but you'll also meet people with a similar mindset.
You have about two years to get into position. Opportunities this big don't come along often, so this is your time to get rich.
Climbing Bulls, Flying Bears
Am I optimistic for the long-term? Absolutely not. I still believe we're due for the mother of all market crashes, and that the U.S. economy is running on borrowed time -- and I do mean borrowed. I think most baby boomers are in serious financial trouble, and that oil will climb above $200 a barrel. Inflation will also increase, causing more pain for the poor and middle class.
The Fed is flooding the market with nearly a trillion dollars of liquidity, which is why I believe gold under $1,200 an ounce and silver under $30 an ounce are bargains. Gold and silver should peak and decline before 2020, completing two 20-year cycles. My exit is to sell silver around 2015. I plan to hold onto gold, income-producing real estate, oil wells, and stocks.
Most of us know the bull climbs slowly up the stairs, but the bear jumps out the window. I believe the bull is still climbing the stairs, and the bear hasn't jumped yet. But rest assured that it will.
Predator's Ball: Cashing In Without Getting Fleeced
by Robert Kiyosaki
This will be a politically incorrect article. It may seem unkind, insensitive, and cruel given the fact that so many people are hurting financially. Many have lost their jobs, homes, retirement security, and hope. Yet -- if you can see beyond today and let intelligence, not emotion, rule the day -- now is the time to position yourself for riches.
You see, the biggest predator's ball in history is in its planning stages and invitations are being sent out. For about a year now, friends and associates have been inviting me to join their investment pools. One friend has over a billion dollars in cash sitting on the sidelines. Last night, another friend said that a large bank had invited him to bid on their portfolio of foreclosures. The minimum price: $30 million in cash. He estimated that for that price we could acquire over a billion in distressed properties. For $1 million, I could buy a ticket to the party. I passed on the deal, saying the price was out of my league.
Many people got into trouble when times were good. For example, some of my family's friends placed all their money with a financial planner during the boom years, believing the standard sales pitch that the market goes up an average of 8 percent a year -- even though it doesn't. For over 20 years, I encouraged them to learn about investing rather than blindly turn over their money to a stranger. Today, they have lost over 45 percent of their portfolio in the last two years. They are not rich people. Now they want to know what to do.
Two Types of Predator's Balls
My point is this: There are two types of predator's balls. There are balls when times are good. My family's friends were victims of this type of exploitation -- when predators get you excited about rising markets.
For example, when real estate was soaring in price, predators known as flippers emerged and began selling houses to people at sky-high prices -- many of whom had no business buying a home.
There are also predator's balls for bad times. These take advantage of the exploitations that occurred during the good times. I like the bad-times predator's balls the best because deals are plentiful, people are humble, prices are low, and opportunities abound. I hope this party lasts for at least five years. I am investing more today than I was two years ago.
The Best of Times -- the Worst of Times
In 1859, Charles Dickens wrote in 'A Tale of Two Cities':
"It was the best of times, it was the worst of times; it was the age of wisdom; it was the age of foolishness; it was the epoch of belief, it was the epoch of incredulity; it was the season of Light, it was the season of Darkness; it was the spring of hope, it was the winter of despair ..."
For millions of people this is the dead of winter. If any of you who are reading this article are going through tough financial straits, I offer you this article and passage as encouragement to keep going -- to make the worst of times your best of times.
As the economy worsens, I am seeing a new predator's ball emerging - one for suckers. This is the ball for gold and silver. If you have been watching television lately, you will have seen ads advising people to send in their old gold jewelry for cash.
Only suckers would do that... but as you know, a sucker is born every minute. I also see ads advertising 100-percent-pure 24-carat gold-plated coins for $29.95. Obviously, the key words are gold-plated. Only a moron would invest in a gold-plated coin. The only way that person can sell that gold-plated coin is by finding another moron -- which I'm sure can be done, especially as the gold and silver markets pick up steam.
A Sign of Bad Business
In Phoenix, a businessman who was convicted on fraud charges recently opened up a new gold coin shop. He had been banned from being in the gold and silver business for ten years. His timing was good because his ten years were up and now he is sending invitations to his party. Invitations are expensive. He has prime retail space, marketing expenses related to advertising heavily on radio and television, half-page ads in newspapers, major yellow page ads, and a slick Web site. This is how predators send out invitations. Any time an investment company has to spend heavily on advertising, it's probably a bad business in which to invest. You may recall that many mutual fund and real estate companies were sending out plenty of invitations during the last stock and real estate predator's balls.
I believe that gold and silver are good investments -- but their prices are at all-time highs, which means it is time to be cautious, not foolish. Today, I hear financial experts on television advising people to buy gold. These are the same guys who were recommending stocks and mutual funds less than two years ago. So be very careful as the gold and silver markets begin their next climb. I am still buying gold and silver but I did most of my buying when gold was at $300 an ounce in 2000 and 2001.
Many gold and silver experts will recommend you buy numismatic coins -- rare and old coins. If you are not a rare coin expert, I'd encourage you to stay away from them. New investors often pay too much for rare coins that are not really rare. If you are new to gold or silver, I recommend you buy as close as possible to the international spot price of the metals, watching out for premiums and commissions per coin. Buy bars or blanks, rather than coins, if premiums are too high. Watch out for scams. If the person you are buying from makes you uneasy, run. Take delivery when you hand over your money. Keep coins or bars in a bank or safe.
A good book I recommend is 'Investing In Gold and Silver' by Mike Maloney. He is one of my personal advisors on the subject, and his book is worth its price in gold.
In closing, I'll leave you with this thought: Remember that when one predator's ball ends, another is starting. If you plan on attending, be sure you are a predator, not the main course.
How the Financial Crisis Was Built Into the System
by Robert Kiyosaki
How did we get into the current financial mess? Great question.Turmoil in the Making
In 1910, seven men held a secret meeting on Jekyll Island off the coast of Georgia. It's estimated that those seven men represented one-sixth of the world's wealth. Six were Americans representing J.P. Morgan, John D. Rockefeller, and the U.S. government. One was a European representing the Rothschilds and Warburgs.
In 1913, the U.S. Federal Reserve Bank was created as a direct result of that secret meeting. Interestingly, the U.S. Federal Reserve Bank isn't federal, there are no reserves, and it's not a bank. Those seven men, some American and some European, created this new entity, commonly referred to as the Fed, to take control of the banking system and the money supply of the United States.
In 1944, a meeting in Bretton Woods, N.H., led to the creation of the International Monetary Fund and the World Bank. While the stated purposes for the two new organizations initially sounded admirable, the IMF and the World Bank were created to do to the world what the Federal Reserve Bank does to the United States.
In 1971, President Richard Nixon signed an executive order declaring that the United States no longer had to redeem its paper dollars for gold. With that, the first phase of the takeover of the world banking system and money supply was complete.
In 2008, the world is in economic turmoil. The rich are getting richer, but most people are becoming poorer. Much of this turmoil is directly related to those meetings that took place decades ago. In other words, much of this turmoil is by design.
Power and Domination
Some people say these events are part of a grand conspiracy, and that might well be. Some people say they represent the struggle between capitalists, communists and socialists, and that might be, too.
I personally don't participate in the debate over a possible global conspiracy; it's a waste of time. To me, the wider struggle is for power and domination. And while this struggle has done a lot of good — and a lot of bad — I just want to know how to avoid becoming its victim. I see no reason to be a mouse trying to stop a herd of elephants from fighting.
Currently, many people are suffering due to high oil price, the slowdown in the economy, loss of jobs, declines in home values, increased bankruptcies and businesses closings, savings being wiped out, the plummeting stock market, and rising inflation. These realities are all direct results of this financial power struggle, and millions of people are its victims today.
An Extreme Example
I was in South Africa in July of this year. During my television and radio interviews there, I was often asked my opinion on the world economy. Speaking bluntly, I said that South Africans had a better opportunity of comprehending the global turmoil because they're neighbors to Zimbabwe, a country run by Robert Mugabe.
In my interviews, I said, "What Mugabe has done to Zimbabwe, the Federal Reserve Bank and the IMF are doing to the world." Obviously, my statements disturbed many of the journalists. I did my best to comfort them and assure them I was not an anarchist. I explained, as best I could, that Zimbabwe was an extreme example of an out of control power struggle.
After they were assured I was only using Zimbabwe to illustrate my point, I said, "If you want to understand the world economy, take a refugee from Zimbabwe to lunch." I advised them to ask the refugee these questions:
1. How fast did the economy turn?
2. When did you know that you were in financial trouble?
3. When did you finally decide to leave Zimbabwe?
4. If you could do things differently, what would you have done?
Three Approaches to a Crumbling Economy
I spoke to three young couples from Zimbabwe while I was in South Africa. Two couples were recent refugees now living in South Africa, and one couple still lives in Zimbabwe. All three couples had interesting stories to tell.
One couple said that they would have quit their jobs earlier. Instead, they hung on, hoping the economy would change. Then, virtually overnight, the value of the Zimbabwean dollar dropped and inflation went through the roof. Even though they received pay raises, the couple couldn't survive and soon depleted their savings. They left Zimbabwe by car with almost nothing. If they could've done something differently, they told me, they would have started a business in Zimbabwe and began exporting products to South Africa, so that they would have had South African currency and a bank account there before they fled.
The second couple that fled the country said they saved money and paid off their house and other debts even as the Zimbabwean dollar fell in value. Looking back, they say they would've saved nothing and gotten deeply in debt in Zimbabwe, allowing them to pay off their debt with the cheaper dollars. Instead, they fled after they lost their jobs, leaving behind their house and owning $200,000 in nearly worthless Zimbabwean dollars.
The third couple still lives in Zimbabwe. When they saw the writing on the wall, they set up a business in South Africa and, with the profits, began acquiring tangible assets in Zimbabwe. Often, they'll buy an asset in Zimbabwe and pay the seller in South African currency. They believe that once Mugabe is gone and order is restored, they'll be in a strong financial position.
Many Problems, Few Solutions
There are three major problems with the events of 1913, 1944, and 1971. The first is that the Fed, the World Bank, and the IMF are allowed to create money out of nothing. This is the primary cause of global inflation. Global inflation devalues our work and our savings by raising the prices of necessities.
For example, when gas prices soared, many people said that the price of oil was going up. In reality, the main cause of the high price of oil is the decreasing value of the dollar. The Fed, the World Bank, and the IMF, like Zimbabwe, are mass-producing funny money, thereby increasing prices and devaluing our quality of life.
The second problem is that our economic crises are getting bigger. In the 1970s, the Fed faced and solved million-dollar crises. In the 1980s, it was billion-dollar crises. Today, we have trillion-dollar crises. Unfortunately, these bigger crises mean more funny money entering the system.
Apocalypse Soon
The third problem is that in 1913, the Fed only protected the large commercial banks such as Bank of America. After 1944, the Fed, the World Bank, and the IMF began bailing out Third World nations such as Tanzania and Mexico. Then, in 2008, the Fed began bailing out investment banks such as Bear Sterns, and its role in the Fannie Mae and Freddie Mac debacle is well known. By 2020, the biggest of bailout of all will probably occur: Social Security and Medicare, which will cost at least a $100 trillion.
Even if we find more oil and produce more food, prices will continue to rise because the value of the dollar will continue to decline. The dollar has lost over 90 percent of its value since the Fed was created. The U.S. dollar will continue to decline because of those seven men on Jekyll Island in 1910.
Granted, the funny-money system has done a lot of good — it has improved the world and made a lot of people rich. But it's also done a lot of bad. I believe somewhere between today and 2020, the system will break. We're on the eve of financial destruction, and that's why it's in gold I trust. I'd rather be a victor than a victim.
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