Robert Kiyosaki's Point of View:
Robert Kiyosaki is one of the wealthy investors that I like to listen to. He has been a long time pusher of investing in real estate up till about a year ago (for the US). But unlike so of his counterparts like Donald Trump who refuse to admit that there is a real estate bubble in the US, Kiyosaki has been warning about the effects and telling wise investors to sell. I respect that.
A couple years ago, I was reading one of his books and I remember him warning about the internet stocks bubble. More over, he was advising to sell your internet stocks and begin to buy gold stocks and commodity stocks. He said he thought that was the next sector to boom and he said he was starting to invest in that sector himself.
So as you can see, Kiyosaki is a very good predictor of trends. In another one of his books I read, his goal is to become a billionaire. If he continues to be spot on with his predictions, he should get there very soon.
Anyways, Yahoo Finance has been publishing short Kiyosaki musings on their site. I think they are quite useful to read. Here are some of my favorites so far:
I'm very bearish on the U.S. dollar and have been for years. That's why I have so many of them. This sounds like a contradiction, but let me explain. The reason I have so many dollars, even though I think they're worth less and less, is because I don't hang on to them. In my mind, cash is trash.
One of the reasons why we have this enormous gap between the world's haves and have-nots is because the have-nots value money -- they work for it, save it, cling to it, and lose it.
A friend just bought a new SUV. It's a beautiful vehicle. The problem is, the vehicle lost nearly 20% of its value the day he drove it off the lot. He's now in debt, paying off a vehicle that's dropping in value with a dollar dropping in value. He's a double loser.
Cash on the Move
Warren Buffett often says, "The best way to get rich is to not lose money." When people purchase consumer items such as a new car, use debt to finance things that shrink in value, or save U.S. dollars, they're losing money. Some people call it inflation, I call it devaluation.
Psychologically, the more Americans' cash -- and the things they buy with it -- decline in value, the more they worry about money. Many begin to work harder or, even worse, go deeper in debt purchasing more consumer items with sliding value. Unfortunately, many wind up with fewer and fewer dollars that continue to sink in value.
The reason I have more and more dollars is simply because I don't hold on to them. Instead, I do my best to keep my dollars moving into assets that are going up in value, not down.
In the late 1990s, when people were pouring money into the tech and dot-com stocks, my dollars moved into oil, gold, silver, and real estate, when prices were low. Today, because the dollar continues to drop in value, I keep moving my money into those same asset classes, although much more cautiously.
Impending Financial Disaster
The primary reason why I keep my dollars moving is because I'm bearish on the greenback. We have all heard the saying, "The U.S. dollar is backed by the full faith and confidence of the U.S. government." It is unfortunate that faith and confidence in the U.S. government is eroding. I don't believe Americans have the stomach to make the changes that are required to run a fiscally responsible government and save the dollar.
When President George W. Bush attempted to reform Social Security, that proposal was more unpopular with Americans than the Iraq war. People love their entitlements. When Bush pushed the Prescription Drug Benefit plan through, I decided the U.S. dollar is toast. To me, all hope of avoiding financial disaster was gone. The American people have voted.
My concern is that very soon, citizens of the world will tire of America's gross fiscal mismanagement and hesitate to take U.S. dollars. In order to keep the world interested in the greenback, interest rates must rise. When that happens, U.S. assets, especially paper assets such as U.S. stocks, bonds, mutual funds, and savings will drop in value. Some real estate prices will increase because replacement costs are high, but overvalued real estate will drop.
At the risk of sounding like a politician who flip-flops, there will still be paper assets and real estate that will rise in value. The secret to surviving in paper assets and real estate is to be very careful and very selective. People who diversify will lose. People who focus will win.
Americans Are Still Asleep
The secret to surviving the next few years is keeping your wealth in real money, not in the U.S. dollar. Buy things that hold their value and are exchangeable all over the world. Commodities such as gold and silver have a world market that transcends national borders, politics, religions, and race. A person may not like someone else's religion, but he'll accept his gold.
One of the reasons why I'm bullish on gold and silver is because the American public is still sound asleep to this asset class. Most Americans have no idea how or where to buy physical gold and silver. The outlets that sell gold and silver I have visited are already low on inventory.
If and when the American public wakes up to the reality that their dollars are not money, but a currency, the panic and stampede will begin. Should that happen, today's prices for gold and silver will look like bargains.
Today, very few people realize that Warren Buffett reportedly holds one of the largest caches of physical silver in America. He purchased silver in the late 1990s, when it was cheap -- and while others were criticizing him for not investing in tech stocks.
The Rewards of Detachment
As I write, hundreds of millions of dollars are searching for a safe home, a shelter that will protect the dollar's value from the crash. It's unfortunate that during this period, the rich will once again become richer, and the financially naïve will again worker harder for U.S. dollars, doing their best to save as many as they can, only to wind up with fewer and fewer dollars.
So the reason I have more and more dollars is simply because I don't hang on to them. During this volatile era, it's best to keep your wealth moving up as the dollar continues to head down.
This article backs up my point of view of investing in the commodity sectors right now.
How many of you are old enough to have been working in 1973? If so, you would've had the kind of economic experience I did at that time. But if you were in school or missed the period of the oil crisis, get ready because those times could return with a vengeance.
I left the Marine Corps in 1974 and got my first (and only) real job with the Xerox Corporation. The U.S. economy was in terrible shape at that time. From 1973 to 1974, the U.S. was in the midst of an energy crisis, and inflation was in the double digits. Stagflation, a new word, had been introduced -- there was high inflation, but the economy wasn't growing.
Because of the energy crisis, I had not one but two cars. One was a Corvette, and one was a Karmann Ghia convertible, made by Volkswagen. I filled up my Corvette with gas on even-numbered calendar days and the other car on odd-numbered days. Also, the speed limit was cut from 65 to 55 mph to reduce gasoline consumption, which meant I was often pulled over for speeding.
Worst of all, as a brand new Xerox salesman just learning to sell, I found myself struggling to save Xerox copiers, rather than sell Xerox copiers. That's because back then, Xerox only rented copiers. As the economy worsened, one of the first items businesses got rid of was their Xerox copier. Each cancellation meant I had to sell two copiers -- one to cover the loss of the cancelled machine and another copier to earn enough money to put gas in my cars and food on the table. In some months, I was losing more machines than I was selling -- and was nearly fired several times.
Oil Prices Will Keep Heading Up
My reason for taking you on this trip down memory lane is because I believe we're approaching a repeat of that 1973-1974 crisis. Once again, oil prices are going through the roof. During the mid-70s, oil went from under $3 a barrel to over $35 a barrel. And in 1974, we were stuck in an unpopular war in Vietnam, a war we would not win.
In 1998, oil was just $10 a barrel, and today it is over $60. We're also stuck in a war we may not be able to win.
The difference this time is that things are actually worse than they were in 1974, at least in my opinion. One difference is that the oil crises back in 1973 to 1974 and again in 1978 were political problems. Today, the oil crisis is a problem of diminishing supply and increasing demand. In other words, this time, there really is an oil crisis.
Many people today believe that oil will once again return to the $35-a-barrel level and aren't concerned. Or they believe that with better technology, energy companies will find more oil, and happy days will be here again.
I believe differently. Not that I'm an oil expert, but in 1966 through 1968 I was hired as an apprentice by Standard Oil of California, where I learned a lot about oil and the oil industry. Although I did see oil prices slide back down in the 1970s, this time, I believe they will go higher, not lower. I wouldn't be surprised if we soon see oil at over $100 a barrel and gasoline at $5 to $12 a gallon at the pump.
Wealth and Energy
Pricey oil makes clear that wealth really is energy in various forms. And that means more than just money. If I'm correct, and oil does go over $100 a barrel, you'll see some individuals' -- and some companies' -- wealth equation look like this:
For people who live in the suburbs and must commute long distances to work, their wealth will sink as energy prices rise. The same is true for the airlines, food, and car companies, plus destinations such as Hawaii, which depend on cheap energy to grow.
For other people (and some companies), their wealth equation will look like this.
For people who invest in oil companies or own oil production, their finances will reflect this equation. This is why Exxon-Mobil (XOM) has recently replaced Wal-Mart (WMT) as the most profitable company in America.
An Alarming Gap
While many environmentalists, concerned with global warming, are thrilled that oil supply is on a decline (and we truly do need to replace oil with more renewable forms of energy, such as wind and solar power), there's another concern that must be considered. If energy costs continue to rise and our economy stops growing and starts shrinking, many stocks will crash, older Americans will not be able to retire, inflation may skyrocket, businesses will close or cut back, and jobs will be lost. Not only will we be facing global warming, we'll be facing civilized chaos.
The problem today is that oil companies are too short-sighted, the environmentalists too far-sighted, and politicians only concerned with being elected. As a result, there will be a gap between the end of oil and a conversion to less destructive forms of energy. In this gap, all hell may break loose.
In my next article, I'll go into what I'm doing to prepare for the gap, as well as why I believe the gap can't be avoided. In other words, it will not be 1973-1974, or stagflation, all over again. I believe it will be the end of civilization as we know it -- and possibly the birth of a brave new world.
As my greatest teacher, Dr. Buckminister Fuller, said to my class in 1982, "Humanity will soon have to choose between utopia or oblivion.... Do we work only for ourselves or for our planet?"
Kiyosaki's opinion about an Oil spike makes sense and I tend to believe we will have one too.
I am really looking forward to his next article in a week about what he recommend investors do to profit from these events.
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