Robert Kiyosaki Blog

Financial Education Portal inspired by Robert Kiyosaki

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Simon Black – Truth: This is what the numbers really have to tell us…

After two months of criss-crossing Europe on somewhat of a bankrupt nations tour, the chilly autumn weather that has settled upon much of the continent is my cue to beat feet out of here for the steamy, humid energy of Southeast Asia. So I’m presently sitting in the lounge at Helsinki airport awaiting a flight to Singapore reflecting on what I’ve seen and learned across Europe. My conclusion– the disconnect between reality and propaganda is at an all-time high. The political leadership across the continent is sounding the ‘all clear’ signal and trying to hype up anything they can pass off as ‘recovery’. (This, brought to you by the same people who said ‘when it gets serious, you have to lie…’) To be fair, the continent does have its bright spots. Germany, Luxembourg, Austria, etc. are comparatively awash with paper prosperity. But in Greece, despite phony political promises that ‘this year will be better’, the numbers tell a completely different story. Here’s an example: Based on the Finance Ministry’s own numbers, the Greek government collected 4.31 billion euros in tax revenue in January 2013. This was less than the 4.87 billion euros Greece collected in January 2012, which was less than the 5.12 billion collected in January 2011, which was less than the 5.68 billion collected in January 2010. You can see the trend. Down. And the data is very clear about this: the Greek government’s tax revenue in January 2013 was 23.2% lower than three years before. Moreover, Greece has managed to rack up another 6.5 billion euros in debt during the first seven months of this year at a time when the economy is actually shrinking. Higher debt, shrinking economy… meaning that the nation’s 175% debt to GDP ratio is worsening. This suggests that another bailout request is imminent. Meanwhile, I saw complete devastation in the real estate market over in Spain and Portugal– assets being liquidated at far less than the cost of construction. And still there are few buyers. In Cyprus, I saw a country still operating under the intense capital control framework they imposed after freezing and confiscating people’s bank accounts. In Italy, I saw an entire generation of young people coming of age at a time when there is practically zero opportunity for anyone under the age of 25. And this is taking a huge toll on the national psyche. And in Iceland, I saw a forgotten story of collapse that has been erroneously heralded by mainstream financial press as the poster child for recovery. Iceland is far from recovery. The government’s own data shows that they posted a RECORD cash deficit for...

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Simon Black – Five reasons why gold prices will decline

This morning I received a research note from a private bank I work with occasionally.Buried in the text was a call for lower gold prices, and the analysts listed five reasons why they think gold prices will decline. Here’s what they had to say: 1) “We expect the scaling back of [the Fed’s] stimulus to happen this year at the December meeting. A reduction in monetary stimulus . . . shall reduce the attractiveness of gold as a zero-income asset.” 2) “Inflation pressures in the developed world should remain subdued, lowering demand for gold as an inflation-hedge.” 3) “We expect the US recovery to accelerate, reducing the attractiveness for gold as a safe-haven asset.” 4) “A subsequent improvement in investor sentiment shall also reduce demand for gold as safe-haven asset.” 5) “Physical demand from India should be discouraged by the gold import duty increases and other measures that aim to reduce the current account deficit.” My analysis? These guys are completely missing the point. The reality is that today’s financial markets are controlled and manipulated by central bankers who are destructively expanding their balance sheets to the point of insolvency. Many central banks are already insolvent. Most “rich” countries are bankrupt. And the “richest” country in the world has entered yet another sad, farcical episode public fiscal humiliation. The US government is so broke that they fail to collect enough tax revenue to cover mandatory entitlement spending (like Social Security) and interest on the debt. And that’s with interest rates at all-time lows. The debt is growing by the day. The US government reached its statutory debt limit back in May, and as soon as they raise the debt ceiling, they’ll quickly reach the new limit again. The US government cannot even afford the 1.968% average interest that it is currently paying. (This is compared to 6.620% back in January 2001, and 3.665% in September 2008 when Lehman collapsed…) Politicians are seizing pension funds, raiding bank accounts, and raising taxes. They’ve imposed capital controls, and even restricted gold importation and ownership. Investors are addicted to cheap money like meth junkies. Stock markets are at all-time highs. Bond markets are near all-time highs. Many other asset classes (US farmland) and commodities (cattle) are also near all-time highs. There’s very little in this world that makes sense. I own farmland in South America as the ultimate hedge against inflation, system disruptions, and economic decline. Plus it generates great cashflow. But farmland isn’t terribly portable or liquid. And that’s why gold is such a great option. Precious metals are like an insurance policy. It’s a policy you hope you’ll never need to cash in. But if the need ever...

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Simon Black – This is panic: Smuggling diamonds out of India

Asia is a damned excited part of the world. And Singapore is the financial epicenter of all of it. For the last 24-hours, banker and fund manager friends of mine have been telling me stories about oil refinery deals in North Korea, their crazy investments in Myanmar, and the utter exodus of global wealth that is finding its way to Singapore. My colleagues reported that in the last few weeks they’ve begun seeing two new groups moving serious money into Singapore– customers from Japan and India. Both are very clear-cut cases of people who need to get their money out of dodge ASAP. In Japan, the government has indebted itself to the tune of 230% of GDP… a total exceeding ONE QUADRILLION yen. That’s a “1″ with 15 zerooooooooooooooos after it. And according to the Japanese government’s own figures, they spent a mind-boggling 24.3% of their entire national tax revenue just to pay interest on the debt last year! Apparently somewhere between this untenable fiscal position and the radiation leak at Fukishima, a few Japanese people realized that their confidence in the system was misguided. So they came to Singapore. Or at least, they sent some funds here. Now, if the government defaults on its debts or ignites a currency crisis (both likely scenarios given the raw numbers), then those folks will at least preserve a portion of their savings in-tact. But if nothing happens and Japan limps along, they won’t be worse off for having some cash in a strong, stable, well-capitalized banking jurisdiction like Singapore. India, however, is an entirely different story. It’s already melting down. My colleagues tell me that Indian nationals are coming here by the planeful trying to move their money to Singapore. Over the last three months, markets in India have gone haywire, and the currency (rupee) has dropped 20%. This is an astounding move for a currency, especially for such a large economy. As a result, the government in India has imposed severe capital controls. They’ve locked people’s funds down, restricted foreign accounts, and curbed gold imports. People are panicking. They’ve already lost confidence in the system… and as the rupee plummets, they’re taking whatever they can to Singapore. As one of my bankers put it, “They’re getting killed on the exchange rates. But even with the rupee as low as it is, they’re still changing their money and bringing it here.” Many of them are taking serious risks to do so. I’ve been told that some wealthy Indians are trying to smuggle in diamonds… anything they can do to skirt the controls. (This doesn’t exactly please the regulators here who have...

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Simon Black – They blew it…

September 23, 2013 London, England [Editor’s Note: Tim Price, Director of Investment at PFP Wealth Management and frequent Sovereign Man contributor is filling in for Simon today.] “This took guts.” – Comment by Steven Ricchiuto of Mizuho Securities in response to the Federal Reserve’s surprise decision to refrain from “tapering” its $ 85 billion monthly bond purchase program. Human beings are suckers for a story. The story peddled by mainstream economic commentators goes that the US Federal Reserve and its international cousins have acted boldly to prevent a second Great Depression by stepping in to support the banks, (and not coincidentally the government bond markets) by printing trillions of dollars through the mechanism of quantitative easing. It’s a story alright. But more akin to a fairy tale story. We favor an alternative narrative, namely that politicians have abdicated all real responsibility in addressing the financial and economic crisis, and the heavy lifting has been left to central bankers who have run out of conventional policy options and are now stroking the fire for the next financial crisis by attempting to rig prices throughout the financial system. Moreover, their actions have had a grave impact on volatility across credit markets, government bond markets, equities, commodities.. But in reference to Steven Ricchiuto of Mizuho Securities (see quote above), it’s quite easy to be brave when you’re spending other people’s money. Or money conjured from thin air. In defending an insolvent banking system, central banks have now created an absurd situation. This writer, for example, has a meaningful cash deposit with a UK commercial bank that is currently earning 0.0% interest (let’s say minus 3% in real terms). To put it another way, we have 100% counterparty and credit risk with a minus 3% annual return. Is it any wonder the savings rate is not higher ? Is it any wonder that savers are stampeding into risk assets? But the Fed has muddied the pond further by attempting a policy of “forward guidance” that is little more than a sick joke, given the recent sell-off in government bond markets and the resultant rise in government bond yields, on fears of “tapering”. It’s clear the Fed has lost control of the bond market. And as Swiss investor Marc Faber puts it, “The question is when will it lose control of the stock market.” Meanwhile, the impact of the Fed’s policies on the general economy has been… questionable, at best. But their impact on financial markets has been demonstrably beneficial to investment banks and their largest clients. As Stanley Druckenmiller points out, the Fed didn’t act bravely, they bottled it. They had the opportunity...

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Simon Black – The no-brainer investment I’m making

September 24, 2013 Pencahue, Chile It’s great to be back in Chile. This place is ripe with so much opportunity. And for the last few days, I’ve been out investigating agricultural investment property in the central regions for my investment portfolio. I’ve been investing heavily in the sector for the past few years… because when I survey the universe of investment possibilities I’ve come across in my travels around the world (to more than 100+ countries), I can’t think of anything more compelling than agriculture. The reason is simple: objectively speaking, there’s absolutely nothing about food right now that gives any cause for cheer. From a demand perspective, the sheer volume of population growth is creating, by the day, a net increase in demand for food. Every human being alive requires nutrition to survive… and as world population is expected to surpass 8 billion people this decade, demand is only growing. Moreover, nearly 60% of the world’s population is in Asia, which is experiencing an unprecedented rise in wealth. Half a billion people in Asia have been lifted from poverty into the middle class over the last decade, and that trend looks likely to accelerate. As their personal income rises, people’s dietary habits often adjust. In addition to consuming more Calories, they also tend to move further up the food chain to more resource consumptive foods. From a supply perspective, the data suggests that human beings have maxed out in what we’re able to squeeze out of the earth. Agricultural yields, i.e. kilograms or bushels of crops per acre, rose dramatically after World War II as Big Ag companies applied toxic science to agricultural production. But yields have now flattened out… and in many cases are falling. This means that farmers are taking less and less from the earth to feed more and more people. More importantly, the amount of arable farmland in the world is declining from soil erosion, weather, land development, etc. And many farmers are simply going out of business. Who wants to be a farmer anymore? Everyone wants to be in finance or tech. Farming isn’t sexy. So there’s very little intellectual or entrepreneurial resources being invested in the sector. Then there’s all the absurd policy trends. Governments pay farmers to NOT grow. Politicians divert food to inefficient biofuels. Taxpayers are forced to subsidize huge ag companies. Central bankers print trillions of dollars, creating inflation in agriculture commodity markets. Bottom line: Supply is decreasing. Demand is increasing. And idiotic policy is making it all worse. The absolute BEST that we can hope for is rising food prices. The worst case is food shortages. This is...

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Simon Black – It’s official. America’s Suez moment has arrived [video]

September 12, 2013 Hong Kong In the summer of 1956, Egyptian president Gamal Abdel Nasser nationalized the Suez Canal, sparking a worldwide crisis. The Suez links the Mediterranean to the rest of the world, and it’s one of the most important maritime thoroughfares in international trade. So this was a big deal. Britain was a major stakeholder in the canal, and almost immediately, the British government put together a small coalition consisting of the UK, France, and Israel to regain Western control. Their subsequent military action, however, greatly displeased the US government. And Uncle Sam quickly asserted its new role as the world’s superpower. True, Britain had once been the dominant power in the world. But years of unsustainable finances and economic decline changed all of that. By the end of World War II, Britain was nearly bankrupt. But reality hadn’t set in yet. They still saw themselves as a superpower. British policymakers were still at the peace table. They helped set up the UN, divide up Germany, and even influence the new global financial system at Bretton Woods. Reality finally hit during the Suez Crisis. It became clear that the UK no longer had the economic fortitude or international standing to do as it pleased. And with the US opposed to the invasion of Egypt, the British government had no choice but to withdraw their troops. In doing so, Britain handed the reins of world dominance over to the United States. And America held this position for decades. But to anyone paying attention, this status has waned. Asia is rising. Major centers of wealth and power have grown around the world. US finances are desolate. And its currency is now widely reviled by foreign governments. But US politicians have completely ignored this trend over the last decade. They spend and act as if US global dominance is an endless river. With Syria, though, the US may have finally reached its Suez moment. Russia has now almost single-handedly precluded the US government from carrying out an attack in Syria. And the Russian President has even taken his case to the American people in which he eloquently criticized both US policy as well as the notion of American exceptionalism. Vladimir Putin is a brute. But he commands a nation that has all the power and might it needs to stand up to the United States and the rest of the West. Just a few months ago, it was the Russians who wagged their fingers at European governments for confiscating bank accounts in Cyprus, comparing such tactics to the Soviet Union. It’s also been the Russians who have stood up to...

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Simon Black – Why Japan’s new home run king forebodes the biggest default in history

September 16, 2013 Tokyo, Japan Suicide has long played a bizarre role in Japanese culture. In feudal Japan, for example, dishonored samurai would often commit seppuku, a suicide ritual that involved ceremonial disembowelment. It was torturous pain lasting for hours. In World War II, the Japanese military churned out suicide attackers known as the kamikaze that routinely antagonized allied warships in the Pacific. And of course, citizens in Hiroshima and Nagasaki simply went back into their homes and waited to become burnt toast despite ample warnings from the US military. Even after the Fukishima disaster, TEPCO employees went rushing back into deadly levels of radiation exposure in what could only be characterized as a suicide mission. Despite the obvious prospect of certain death, the Japanese collective still did what was expected of them by the state. Even if it meant roasting alive under a mushroom cloud. This fierce commitment to the nation has often been abused by the Japanese government which disposed of its people like kindling. It’s the same today. Looking purely at the numbers, Japan’s medium-term fundamentals are among the bleakest in the world. Total government debt amounts to over 200% of the country’s entire GDP– a figure so large that the Japanese government spends 51.5% of the 43 trillion yen ($ 430 billion) they collect in tax revenue just to pay interest! Perhaps even more astounding is that ‘primary balance expenses,’ i.e. normal government expenditures, totaled 70.3 trillion yen, or 163% of tax revenue. The only way they’ve managed to stay afloat is by issuing more debt, which makes the problem even worse. In fact, 46% of the 2013 budget is being financed by debt. These guys are running out of rope. And fast. The government is trying to ‘fix’ this by appealing to Japanese people’s sense of national pride to get them to buy more government bonds. Needless to say, this is like a modern-day economic kamikaze– letting the people commit financial suicide for the good of the state. And perhaps decades ago, this tactic may have worked. But not today. Times are changing, and people aren’t willing to lay down like they used to. Here’s an interesting example– Japan is a baseball obsessed nation. They love the game. And their equivalent of Babe Ruth is a player named Sadaharu Oh who retired in 1980. Oh is a national hero for hitting 55 home runs in a single season, a record which stood for decades. This season, a foreign player named Wladimir Balentien started challenging Oh’s record. And as he got close, many Japanese pitchers in the Nippon league refused to even throw to him...

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Simon Black – What time would you leave?

September 17, 2013 En route to the United States In mathematics, the term ‘linearity’ describes a relationship in which the rate of change for a variable is constant. If you’re driving from Paris to Frankfurt at 100 kilometers per hour, then this is a linear system– your rate of change (speed) is constant. Exponential growth, on the other hand, describes a relationship in which the rate of change for a variable is proportional to its current value. Think of a single bacterium that multiplies into two. Two become four. Four become eight. Eight become sixteen. Etc. The more bacteria, the faster the population grows. This is exponential. Many of the issues we face today are exponential problems masquerading as linear ones. And this is a huge distinction. Think about the debt. I was in Japan for the last several days, a country so deeply in debt that the government has to finance 46.3% of its annual budget with DEBT. Imagine, for example, that your total household budget is $ 100,000 annually. It would be as if you had a $ 54,000 salary, and had to borrow the rest on your credit cards. There’s a huge problem with this approach– the more debt you take on, the harder it becomes to pay back, and the more debt you’ll have to take on. It’s a vicious cycle. The Japanese government has to borrow money just to pay interest on the money they’ve already borrowed. Same in the US and most of Europe. This means that each year, they have to take on more and more debt just to pay for the debt they already have. Just like the erosion of civil liberties, the destruction of financial privacy, the growth in world population, the expansion of the money supply, and the demand/depletion of natural resources, debt is an exponential challenge. The danger with exponential problems is that they can really sneak up on you. Here’s an example– Let’s say you’re at a party in a small apartment that’s about 500 square feet in size. Then suddenly, at 11pm, a pipe bursts, starting a trickle into the living room. Aside from the petty annoyance, would you feel like you were in danger? Probably not. This is a linear problem– the rate at which the water is leaking is more or less constant, so the guests can keep partying through the night without worry. But let’s assume that it’s an exponential leak. At first, there’s just one drop of water. But each minute, the rate doubles. So by 11:01pm, there’s 2 drops. By 11:02, 4 drops. And so forth. By 11:27pm, there’s only six...

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Simon Black – After $1+ trillion, the Fed can’t even create jobs in the banking industry

September 20, 2013 Santiago, Chile One of those generally accepted truths that most people believe is that banks are safe. We seem to be told this for our entire lives… that banks, in their grandiose buildings and marble floors, are veritable rivers of money. We’re also told that bankers are conservative fiduciary stewards, unflappably restrained in managing other people’s money. And even in the infinitesimally unlikely event of an anomaly, the government is standing behind the banks to ensure that depositors don’t lose. With such a strong propaganda machine behind the banks, you can’t really blame people for not giving a second thought to where they park their cash. But this is actually a huge decision. A bank is like a silent financial partner. And when the going gets tough, choosing the wrong financial partner can be as destructive as a bad marriage. Just ask anyone in Cyprus. In the Land of the Free, the Godfather of the banking industry is the Federal Depository Insurance Corporation (FDIC), the primary entity that is charged with regulating and insuring the banking industry. Given such a prodigious task, particularly in these tumultuous times, you’d think the FDIC would have a vast treasure trove of reserve funds to guarantee the entirety of the US banking system. Again, though, this is another case of reality being far, far from the sentiment and propaganda. Based on the FDIC’s recently published numbers, their reserve fund holds a mere $ 37.9 billion. This sounds like a lot. Except when you compare it to the $ 5.25 trillion of ‘insurable deposits’ held in the US banking system. In other words, the FDIC’s reserve fund constitutes just 0.7% of the bank deposits they’re obliged to guarantee. This is hardly a resilient figure. Especially when the FDIC’s own report names 553 ‘problem’ banks which control nearly $ 200 billion in assets, about 5 times the size of their reserve fund. These decisions matter. It matters where we hold our savings. And how. We cannot simply assume away that our home country’s banking system is in good financial condition. Or that our funds are safe. It’s important to take a look at the hard numbers, and then make a rational, informed decision about the best place to hold your hard-earned savings. The world is a big place, and there are plenty of attractive alternatives. Norway, for example, presents some of the best capitalized banks in the world. They’re backed up by a government that has zero debt and is awash with cash. And the Norwegian krone is mathematically the safest currency in the West. There are many other great options to...

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Sep19

Simon Black – Investment bank manager: “Nobody knows what the f**k is going on…”

Financial circles in Hong Kong are buzzing today on the new Goldman Sachs projection that gold may drop below $1,000 an ounce.

And in merely suggesting such a death sentence for the metal, Goldman’s pronouncement pushed the paper price of gold contracts down $20+.

Many technical indicators underscore Goldman’s views. There’s very little floor for gold prices below $1,200, signaling that gold could gap down quickly.

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