In Sunday school I was taught the parable of the pharaoh of Egypt and his dream of seven fat cows being eaten by seven skinny cows. Deeply disturbed, the pharaoh sought the interpretation of his dream. A young slave boy interpreted the dream to mean Egypt would have seven years of plenty to be followed by seven years of famine. The message: Prepare for the lean years during the years of plenty. The pharaoh prepared Egypt for the lean years and led it into an era of prosperity.
My rich dad used the story of the three little pigs to make a similar point. As you know, one pig built his house out of straw, the other of sticks. Once the first two pigs finished their houses they began to party, taunting and laughing at the third pig who was taking longer, building his house of bricks. After the house of bricks was finished, a big bad wolf appeared and blew down the houses of straw and sticks. If not for the shelter of the house of bricks, the first two pigs would have been pork dinner.
In 2007 a big bad wolf known as the ‘subprime crisis' blew down financial houses made of straw and sticks, houses known as Lehman Brothers, Bear Stearns, AIG, Merrill Lynch, Washington Mutual, Fannie Mae, and Countrywide -- as well as the homes and businesses of people who built their lives on straw and sticks.
Lessons of the Pharaoh
Last month's column was about reasons why people should prepare for the worst. This article is about how to prepare for the worst. Preparation begins with understanding the lessons of the pharaoh and the three little pigs: Prepare for the worst even when times are good.
For me, it was not easy to follow these lessons, especially during the boom years. It was tough preparing for bad times while my friends were enjoying the good times. It was tough not to climb the corporate ladder seeking higher pay and job security or chasing financial fads such as flipping real estate, day trading stocks, gambling on dotcom companies, investing in mutual funds, or using my home as an ATM to pay off my credit cards. Today, many of my fellow baby boomers who enjoyed the boom years are concerned about survival in the lean years.
In 1973, returning from the Vietnam War, I found my dad, in his fifties and in the prime of his life, unemployed. Although a highly educated, honest, hard-working man -- and former superintendent of education for the state of Hawaii and Republican Party candidate for Lt. governor of the state - he was sitting at home, looking for work. My dad's situation, combined with my experience of the war, was my wake-up call. I knew something was wrong, but I did not know what was wrong.
The stories of the pharaoh and the three little pigs danced in my head. I knew I had to prepare, but for what I did not know. I just knew I could not follow my dad's advice, which was to fly for the airlines or go back to school and get my PhD. My instincts, sharpened by the war, knew his advice was not right for me. I decided to follow in my rich dad's footsteps, not my poor dad's.
One Path to Take
The following are some of the steps I took to prepare for the worst. I do not recommend my path; I will simply state why I did what I did and what benefits were gained.
1. I became an entrepreneur, not an employee. This was a tough choice. I did not have the skills, experience, or financial backing to support me through the lean years and my mistakes...and there were many lean years and mistakes. Many of the businesses I started failed.
Thirty-six years later, I own a number of businesses and employ hundreds of people all over the world. Some of the benefits: A) I make more money and pay less in taxes because I provide jobs, and that is what this economy needs -- more jobs. When President Obama speaks about raising taxes on the rich, he speaks about high-income employees and small business owners, not entrepreneurs who build big businesses. As you know today, many big businesses are doing better as small businesses crumble. B) I can start new businesses as the economy changes and new opportunities appear. C) I can start businesses in different countries when new opportunities appear. D) I am not afraid of losing my job. E) My income goes up as my business grows.
The good news is that it is easier to be an entrepreneur today. The Web and new technology offer more opportunities to reach a world market at a lower price. Today a person can start a business at home and reach the world market.
2. I invest for cash flow, not capital gains. Most people invest for capital gains. These are the people who have lost a lot of money or are afraid of losing more money. When a person says, "My house has appreciated in value" or "The stock market is going up," they are investing for capital gains. Investing for capital gains is like building a house of straw or sticks.
In 1973 I took a real estate course to learn how to invest for cash flow. Even though the real estate market crashed in 2007, my rental properties continue to produce cash flow. Even though banks are not lending money to many homeowners, the government continues to loan millions, via the FHA, to investors who provide housing. This means we receive tax breaks and use debt -- other people's money -- to increase income.
The good news is, when prices crash, cash flow investments become more affordable. For example, stocks such as Johnson & Johnson, a company that pays a steady dividend (cash flow), become more affordable. If you want to start your real estate career, now is the time to invest for cash flow.
3. I invest for inflation. In 1971 President Nixon took the world off the gold standard, which means the world's central banks can print as much money as they want. I was in Vietnam in 1972 and saw what happens when people do not trust paper money. Rather than try to live below my means and save money, I invest in gold, silver, and oil -- commodities that go up in price as the government prints more money.
When investing for inflation, I am not investing for cash flow. In this case, I am investing to protect my wealth from the predatory practices of the Federal Reserve Bank, the U.S. Treasury, and the ultra rich manipulating the world economy.
China does not trust the U.S. dollar. Today China is using U.S. dollars to buy commodities such as oil, copper, gold, and silver. The good news is silver is still inexpensive. In 2007 gold was approximately 50 times more expensive than silver. In 2009 the gap is 70 times -- which means silver is a bargain.
Silver is used in the electronics industry and is consumed daily; stock piles of silver are dwindling. On top of that, for the first time in modern history, there is more gold in the world than silver. In other words, silver is more valuable than gold. The good news is, at less than $20 an ounce, almost anyone can afford to start preparing for the worst and building their own house of silver.
In conclusion: My mom and dad lived through the last depression. They knew lean years. The baby boom generation is about to have their fat cows eaten by skinny cows. The good news is, if you can thrive when times are bad, these are the best of times.
Posted on Monday, September 28, 2009, 12:00AM
masqara
Showing posts with label Robert Kiyosaki. Show all posts
Showing posts with label Robert Kiyosaki. Show all posts
Sunday, January 10, 2010
Saturday, January 9, 2010
Preparing for the Worst
"Is the crisis over?" is a question I am often asked. "Is the economy coming back?"
My reply is, "I don't think so. I would prepare for the worst."
Like most people, I wish for a better future for all of us. Life is better when people are working, happy, and spending money.
The stock market has been going up since March 9, 2009. Talk of "green shoots" fill the air. Yet, in spite of the more positive news, I continue to recommend that people prepare for the worst. The following are some of my reasons:
1. I believe the stock market is being manipulated. I suspect the government, banks, and Wall Street are doing everything they can to keep the market from crashing. Our leaders know that nothing makes the world feel better than a raging bull market.
Do I have any proof that the market is being manipulated? No. I just smell a rat, or a pack of rats. I believe greed, self-interest, arrogance, and fear control the financial markets. I suspect those in charge will do anything to keep us all from panicking... and I don't blame them. A global panic would be ugly and dangerous.
2. In my view, this global crisis has been caused by the Federal Reserve Bank, the U.S. Treasury, Wall Street, and the central banks of the world. They caused the problem, profited excessively in doing so, and now profit by being asked to fix the problem.
Every time I hear a politician mention the word stimulus, my mind flashes back to high school biology class, when I touched battery wires to a dead frog to make it twitch. Today, you and I are the dead frogs. Pretty soon the dead frog will be fried frog.
In the 1980s, our government's hot money stimulus was measured only in the millions of dollars. By the 1990s, the government had to ramp the stimulus voltage into the billions in order to get the frog to twitch. Today the frog has jumper cables with trillions in high-voltage hot money pouring through the lines.
While most us feel better when we have more high-voltage money in our hands, none of us feel good about higher taxes, increasing national debt, and rising inflation for the long term. Another old saying goes, "Sometimes the cure is worse than the disease." I say the government stimulus cure is killing us frogs.
3. Old frogs don't hop. Another reason I am cautious about the future is that the Western world has a growing number of old frogs. Between 1970 and 2000, the economy responded to bailouts and stimulus packages because the baby boomers of the world were entering their greatest earning years -- their purchasing power increased, and demand for homes, cars, refrigerators, computers, and TVs boosted the economy.
The stimulus plans seemed to work. But when a person turns 60, their spending habits change dramatically. They stop consuming and start conserving like a bear preparing for winter. The economy of the Western world is heading into winter. Hot wires and hot money will not get old frogs to hop. Old frogs will simply join the bears and stick that money in the bank as they prepare for the long, hard winter known as old age. The businesses that will do well in a winter economy are drug companies, hospitals, wheelchair manufacturers, and mortuaries.
4. The dying frog economy will lead us to the biggest Ponzi schemes of all: Social Security and Medicare. If we think this subprime financial crisis is big, it's my opinion that this crisis will be dwarfed by the crisis brewing in Social Security and Medicare...Medicare being the biggest crisis of all. As old frogs head for the big lily pad in the sky, they will demand young frogs spend even more in tax dollars just to keep old frogs from croaking.
5. The 401(k)Ponzi scheme. A Ponzi scheme, like the scheme Madoff ran, depends upon young money to pay off old money. In other words, a Ponzi scheme needs tadpoles to finance old frogs. The same is true for the 401(k) and other retirement plans to work. If young money does not come into the stock market, the old money cannot retire. One reason so many people my age are worried, not only about Social Security and Medicare, is because they're concerned about getting their money out of the stock market before the other old frogs decide to drain the swamp.
The facts are that the 401(k) plan has a trigger that requires old frogs to begin withdrawing their money at a certain age. In other words, as baby boomers grow older, more and more will be required, by law, to begin withdrawing their money from the market. You do not have to be a rocket scientist to know that it is hard for a market to keep going up when more and more people are getting out.
The reason the 401(k) has this law related to mandatory withdrawals is because the Federal government wants to collect the taxes that they deferred when the worker's money went into the plan. In other words, the taxman wants their pound of flesh. Since they allowed the worker to invest without paying taxes, the government wants their tax dollars when the employee retires. That is why the laws require older workers to sell their shares ¬-- and pay their pound of flesh.
Demographics show that we are entering a battle between young and old. I call it the "Age War." The young want to hang onto their money to grow their families, businesses, and wealth. The old want the tax and investment dollars of the young to sustain their old age.
This war is not coming...it is upon us now. This is one of many reasons why I remain cautious and say, "The worst is yet to come."
Posted on Monday, August 24, 2009, 12:00AM
My reply is, "I don't think so. I would prepare for the worst."
Like most people, I wish for a better future for all of us. Life is better when people are working, happy, and spending money.
The stock market has been going up since March 9, 2009. Talk of "green shoots" fill the air. Yet, in spite of the more positive news, I continue to recommend that people prepare for the worst. The following are some of my reasons:
1. I believe the stock market is being manipulated. I suspect the government, banks, and Wall Street are doing everything they can to keep the market from crashing. Our leaders know that nothing makes the world feel better than a raging bull market.
Do I have any proof that the market is being manipulated? No. I just smell a rat, or a pack of rats. I believe greed, self-interest, arrogance, and fear control the financial markets. I suspect those in charge will do anything to keep us all from panicking... and I don't blame them. A global panic would be ugly and dangerous.
2. In my view, this global crisis has been caused by the Federal Reserve Bank, the U.S. Treasury, Wall Street, and the central banks of the world. They caused the problem, profited excessively in doing so, and now profit by being asked to fix the problem.
Every time I hear a politician mention the word stimulus, my mind flashes back to high school biology class, when I touched battery wires to a dead frog to make it twitch. Today, you and I are the dead frogs. Pretty soon the dead frog will be fried frog.
In the 1980s, our government's hot money stimulus was measured only in the millions of dollars. By the 1990s, the government had to ramp the stimulus voltage into the billions in order to get the frog to twitch. Today the frog has jumper cables with trillions in high-voltage hot money pouring through the lines.
While most us feel better when we have more high-voltage money in our hands, none of us feel good about higher taxes, increasing national debt, and rising inflation for the long term. Another old saying goes, "Sometimes the cure is worse than the disease." I say the government stimulus cure is killing us frogs.
3. Old frogs don't hop. Another reason I am cautious about the future is that the Western world has a growing number of old frogs. Between 1970 and 2000, the economy responded to bailouts and stimulus packages because the baby boomers of the world were entering their greatest earning years -- their purchasing power increased, and demand for homes, cars, refrigerators, computers, and TVs boosted the economy.
The stimulus plans seemed to work. But when a person turns 60, their spending habits change dramatically. They stop consuming and start conserving like a bear preparing for winter. The economy of the Western world is heading into winter. Hot wires and hot money will not get old frogs to hop. Old frogs will simply join the bears and stick that money in the bank as they prepare for the long, hard winter known as old age. The businesses that will do well in a winter economy are drug companies, hospitals, wheelchair manufacturers, and mortuaries.
4. The dying frog economy will lead us to the biggest Ponzi schemes of all: Social Security and Medicare. If we think this subprime financial crisis is big, it's my opinion that this crisis will be dwarfed by the crisis brewing in Social Security and Medicare...Medicare being the biggest crisis of all. As old frogs head for the big lily pad in the sky, they will demand young frogs spend even more in tax dollars just to keep old frogs from croaking.
5. The 401(k)Ponzi scheme. A Ponzi scheme, like the scheme Madoff ran, depends upon young money to pay off old money. In other words, a Ponzi scheme needs tadpoles to finance old frogs. The same is true for the 401(k) and other retirement plans to work. If young money does not come into the stock market, the old money cannot retire. One reason so many people my age are worried, not only about Social Security and Medicare, is because they're concerned about getting their money out of the stock market before the other old frogs decide to drain the swamp.
The facts are that the 401(k) plan has a trigger that requires old frogs to begin withdrawing their money at a certain age. In other words, as baby boomers grow older, more and more will be required, by law, to begin withdrawing their money from the market. You do not have to be a rocket scientist to know that it is hard for a market to keep going up when more and more people are getting out.
The reason the 401(k) has this law related to mandatory withdrawals is because the Federal government wants to collect the taxes that they deferred when the worker's money went into the plan. In other words, the taxman wants their pound of flesh. Since they allowed the worker to invest without paying taxes, the government wants their tax dollars when the employee retires. That is why the laws require older workers to sell their shares ¬-- and pay their pound of flesh.
Demographics show that we are entering a battle between young and old. I call it the "Age War." The young want to hang onto their money to grow their families, businesses, and wealth. The old want the tax and investment dollars of the young to sustain their old age.
This war is not coming...it is upon us now. This is one of many reasons why I remain cautious and say, "The worst is yet to come."
Posted on Monday, August 24, 2009, 12:00AM
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