Robert Kiyosaki Blog

Financial Education Portal inspired by Robert Kiyosaki

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Simon Black – The one investment you want to avoid at all costs

February 20, 2014 Sovereign Valley Farm, Chile 4.1%. I read it twice to make sure my brain had processed the number correctly. Yep, 4.1%. This was the annual yield promised on a new 5-year bond investment that a private banker colleague had sent to me. I couldn’t believe it. The bond issuance was by a state-owned company in India. And despite the Indian government having a -very- recent history of capital controls, price fixing, and asset confiscation, and despite the company being rated near JUNK status, the bond only carried a yield of 4.1%. This is really amazing when you think about it. Central bankers have destroyed money and interest rates to the point that near-bankrupt companies in shaky jurisdictions can borrow money for practically nothing. It’s an utter farce. The rate of inflation is -at least- 3% in many developed countries. Central bankers will even say they are targeting 3% inflation. This means that if investors simply want to generate enough income so that their after-tax yield keeps pace with inflation, they have to assume a ridiculous amount of risk. This is a really important point to understand given that the global bond market is so massive– roughly $ 100 trillion, with nearly $ 1 trillion traded each day in the US alone. This is almost twice the size of the global stock market. And even if people never invest in a bond themselves, they’re directly connected to the bond market. Your pension fund owns bonds. The bank that is holding on to your money owns bonds. The companies listed on the stock market that you invest in own bonds. Yet bonds are some of the worst investments out there right now. And that’s saying a lot given how overvalued stock markets are. Here’s the bottom line: adjusting for both taxes and inflation, bondholders are losing money, even on risky issuances. Think about it– if you make a 4% return and pay 25% in taxes, your net yield is 3%. If inflation is 3%, your entire gain is wiped out… so you have taken that risk for nothing. If inflation rises just a bit then you are in negative territory. There are those who suggest that deflation is a much greater risk right now than inflation… and that bonds are great investments to own in the event of deflation. But here’s the thing– even if deflation takes hold and prices fall, anyone who is deeply in debt is going to feel LOTS of pain. Instead of their debt burden inflating away, now they’ll be scrambling to make interest payments. So while bonds are a sensible deflationary investment in...

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The Fed Can’t Print a Brighter Future

Stock indexes are making new highs. With share prices surging the collective mood must be ebullient. After all, stock prices are the collective present value calculations of investors’ guesses as to future earning streams. Future profits and prosperity equalcurrent high stock prices. But this isn’t your ordinary market. While stock prices portray exuberance, at no time in history have American adults feared more for the futures of their children. Americans answering a survey from Pew Research aren’t wild about the present economy and see trouble ahead. Only 33% think the economy is good now. More importantly, the very same percentage (only 33%) of respondents believe their children will be better off than their parents. …two experts said the Fed is now primarily in the business of increasing stock prices. The numbers from Rasmussen Reports are even more negative — only 15% of American adults believe their children will be better off. The overwhelming majority, 61%, disagree, and 24% don’t know. There is no more negative indicator of the public’s collective mood than that. It’s one thing to believe things are tough at the moment. However, giving up on the future is drastic. The mood is even worse in Europe. Only 9% of those polled in France believe kids will be better off than their parents. In Italy, that percentage is 14%, and in Britain, 17%, while the rest of Europe this percentage is in the 21-28% range. Forty percent of Russians believe children will be better off than parents. Meanwhile, stock markets in these countries have been up, up and away the same as the U.S. markets. So what accounts for high flying stocks? It’s not their optimism about the future. But maybe the Fed has something to do with it. Bob Pisani, CNBC’s roving reporter on the NYSE floor, told viewers recently the common answer he gets when he asks what the Fed’s quantitative easing has done for the market. It’s usually something around 1,000-2,000 points on the Dow Jones Industrial Average. For the Fed’s 100th birthday, PBS promised a debate about the merits of the central bank on Consuelo Mack’s Wealthtrack program. What happened was two experts said the Fed is now primarily in the business of increasing stock prices. “New thing — it is in the business of talking up the stock market… The Fed is manipulating prices, especially on Wall Street,” said Jim Grant of Grant’s Interest Rate Observer. To another question from Mack, Grant says: “The Fed has presided over the decay of finance.” Grant’s “opponent,” Richard Sylla, the Henry Kaufman Professor of the History of Financial Institutions and Markets at NYU’s Stern School...

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New NIA Option Suggestion

In 2014, NIA believes we will see precious metals and agricultural commodities make their largest gains in history. NIA’s #1 way to play next year’s agriculture boom is its stock suggestion Agria (GRO), which broke out big on Friday rising $0.10 or 7.24% to $1.48 per share. In NIA’s opinion, new 52-week highs are coming for GRO very shortly. NIA would like to take this opportunity to announce its #1 way to play next year’s rally in precious metals. NIA suggests for its members to research the January 2015 Market Vectors Gold Miners ETF (GDX) $25 call option, currently priced at $1.92. GDX is a gold stock ETF with its top three holdings being GG, ABX, and NEM, three of the safest gold mining stocks. GDX is currently trading for $21.25 per share. Investors who buy the January 2015 GDX $25 call option at $1.92, will at least double their money if GDX rises by 35.7% to $28.84 per share within the next 55 weeks. If GDX itself rises by 100% to $42.50 per share over the next 55 weeks, NIA’s GDX call option suggestion will be worth $17.50 for a potential gain of 811.46%. The contract expires on January 17, 2015. GDX mostly tracks the same stocks as the HUI Amex Gold Bugs Index. To determine if gold stocks are undervalued or overvalued, NIA closely tracks the HUI/Gold ratio, which is the latest HUI price divided by the price of gold. The HUI/Gold ratio is currently down to 0.163, well below its 17 year average of 0.37. In fact, the last time the HUI/Gold ratio was this low, was all the way back in 2001 – at the very start of the current gold secular bull market. Gold’s secular bull market is far from over and NIA believes this is a once in a lifetime opportunity to make a fortune off of artificially low gold mining stocks. Although it’s true that many gold miners are losing money at this very moment, it’s already more than priced in! NIA has seen many gold miners in recent weeks take steps to reduce their expenses and focus on the production of high grade gold resources. The fundamentals of gold mining stocks are beginning to rapidly improve! In 2014, NIA believes large-cap gold mining stocks could rise 3-4X faster than the price of gold! If gold merely rises 23.5% in 2014 to $1,500 per oz, and the HUI/Gold ratio returns to its historical average of 0.37, the HUI would rise from its current level of 198.18 up to 555, for a gain of 180%. If the HUI rises 180%, GDX most likely...

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Philip Judge on Phase Transition in 2014

The town of Lugano lies on Lake Lugano nestled in the Swiss Alps in Italian-speaking southern Switzerland, arguably one of the most beautiful old towns in all of Europe. Dinning in Lugano one evening last month with Alex Stanczyk and Jim Rickards, the conversation turned to ‘Complexity Theory.’ Jim spends several pages describing details of the Theory in Chapter 10 of his excellent bestselling book Currency Wars: The Making of the Next Global Crisis (1). One thing I learned from the dinner is that Complexity Theory is complex. However, the theory could be summarized as follows: Complex systems continuously produce surprising results. When systems are highly complex, emergent properties are far more powerful and unexpected. A great example Jim points out is climate which is one of the most complex systems humans can study. Despite thousands of years of observing and studying climate and weather patterns, and despite all the science and tools we have at our disposal today, it is still not possible for us to accurately predict the weather more than four days in advance due to its complexity. Another important aspect of Complexity Theory is what is known as ‘Phase Transition.’ Phase Transition describes when a complex system changes its state. Again, Jim uses two good examples from nature. When a volcano erupts, there is a Phase Transition in the state of the volcano from dormant to active. A second example would be an avalanche. Snow may fall on a steep incline for a long period of time; however, eventually the snow field will reach a critical state. Finally, one single snow flake will trigger a Phase Transition called an avalanche. Phase Transition demonstrates how catastrophic effects can be triggered from small causes; a single snow flake can cause a village to be destroyed through an avalanche. Yet another feature of Complexity Theory is the frequency of ‘Extreme Events.’ Conventional wisdom suggests that small events happen all the time, while extreme events happen rarely. Manmade systems grow in size and complexity all the time, while more manmade systems become connected and interconnected. As the group of manmade systems grow in size and complexity and as a whole move toward critical state, the risk of catastrophic Phase Transitions grows exponentially. “If the size of the system is doubled, the risk does not merely double – it increases by a factor of ten. If the system is doubled again, the risk increases by a factor of one hundred. Double it again, and risk increases by a factor of one thousand, and so forth,” states Jim. This leads to a point where Extreme Events are no longer happening rarely...

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The Single Biggest Reason Most Investors LOSE Money

It’s almost never openly admitted in public, but the reality is that few if any investors actually beat the market in the long-term. The reason for this is that most of the investment strategies employed by investors (professional or amateur) simply do not make money. I know this runs counter to the claims of the entire financial services industry. But it is factually correct. In 2012, the S&P 500 roared up 16% including dividends. During that period, less than 40% of fund managers beat the market. Most investors could have simply invested in an index fund, paid less in fees, and done better. If you spread out performance over the last two years (2011 and 2012) the results are even worsen with only 10% of funds beating the market. If we stretch back even further, the results are even more dismal. For the ten years ended 1Q 2013, a mere 0.4% of mutual funds have beaten the market. 0.4%, as in less than half of one percent of funds. These are investment “professionals,” folks whose jobs depend on producing gains, who cannot beat the market for any significant period. The reason this fact is not better known is because the mutual fund industry usually closes its losing funds or merges them with other, better performing funds. As a result, the mutual fund industry in general experiences a tremendous survivor bias. But the cold hard fact what I told you earlier: less than half of one percent of fund managers outperform the market over a ten-year period. So how does one beat the market? Cigar Butts and Moats. “Cigar butts” was a term used by the father of value investing, Benjamin Graham, to describe investing in companies that trade at significant discounts to their underlying values. Graham likened these companies to old, used cigar butts that had been discarded, but which had just one more puff left in them. Like discarded cigar butts, these investments were essentially “free”: investors had discarded them based on the perception that they had no value. However, many of these cigar butts do in fact have on last puff in them. And for a shrewd investor like Benjamin Graham, that last puff was the profit potential obtained by acquiring these companies at prices below their intrinsic value (below the value of the companies assets plus cash, minus its liabilities). Graham used a lot of diversification, investing in hundreds of “cigar butts” to produce average annual gains of 20%, far outpacing the S&P 500’s 12.2% per year over the same time period. So when I say that you can amass a fortune by investing in Cigar...

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India’s Demand to Buy Silver Doubles on Gold Ban, Price Drop

Anti-gold rules force consumers to buy silver instead, imports double from 2012… DEMAND to buy silver amongst Indian households has pushed the country’s imports of the precious metal to twice last year’s level and may set a record in 2013, according to industry experts. Between January and September, silver imports to India totaled more than 4,000 tonnes, already beating full-year 2012 says the Thomson Reuters GFMS consultancy. The world’s largest end-consumer of silver bullion as well as gold, India’s current record demand to buy silver came at just over 5,000 tonnes in 2008. That figure equals some 16% of total global demand, put around 30,000 tonnes per year. India’s demand to buy gold, also the world leader, has been nearer 25%. But after July and August this year saw silver imports of 1,000 tonnes as gold imports fell to zero, “India could import 6,000 tonnes of silver this year,” reckons a special report from Japanese trading house Mitsui, “almost 1,000 tonnes more than the record imports seen in 2008.” “There has been a massive improvement in silver imports,” agrees Bombay Bullion Association director Harmesh Arora, speaking to Reuters today, “and we will continue to see more. “Investors are taking advantage of lower prices,” says Arora, “and the lack of restrictions on silver imports as of now.” Noting the surge in demand to buy silver as prices fell steeply in 2011 from near all-time highs, “The response of Indian consumers to price weakness in silver can be spectacular,” says Mitsui strategist David Jollie. Even though silver cannot directly replace gold in many areas of India’s cultural and religious culture, he adds, “The massive price decline for silver in April 2013 encouraged further buying.” Looking at the Indian government’s aggressive anti-gold measures, “I don’t think we will see any policy changes in silver,” says Rajesh Khosla, managing director with refiner MMTC PAMP – part-owned by the government. “There is less gold available, so rural people will gradually move to silver. It will be a more of a default option than a conscious choice,” he believes. India’s Demand to Buy Silver Doubles on Gold Ban, Price...

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Anglo Far East – Flying by Sight Versus Instruments

Flying by Sight Versus Instruments “VFR”Visual Flight rules “IFR” Instrument Flight Rules As sponsor of a GATA presentation in Auckland by the chairman- Chris Powell over the weekend, I had the pleasure of spending time and picking his brain on many subjects. High on the list was the current correction in gold and its seeming long and sustained period of flat or lower prices. There are many measures to gauge the market but one of the best is outright sentiment and he said that for every 100 people that would have had contact with him in times past, the number is more like 20 now. If I take that same sentiment gauge and cross it over to the exploration/ junior mining sector and even the mid-tier and senior one you get a really sad story. Here is what a professional capitulation looks like from a seasoned mining writer that makes his living selling information 1/ convince me that the resource sector recovery expected this fall is no longer valid. Even the strongest companies are now weakening again and I think this is a strong indica­tion that our market troubles will continue well into next year. This unfortunate chain of events leads me to believe that we should not be buying any junior mining stocks right now. 2/ Many of us, including myself, beefed up positions in companies like “%$” thinking this would be the start of getting our portfolios back on track. It hasn’t happened and I have never felt more discouraged about anything I have dealt with in my entire life. It has felt like an emotional earthquake to my soul. 3/ Even during the 2008 meltdown situation, I felt more composed and confident because I knew we would rebound, which we did within a relatively short-period of time. But this current market situa­tion has gone from bad, to worse, to intolerable with further downside very likely. 4/ I even wrote many times in the last several years that before the screaming, parabolic market in our favour would happen we may have to deal with downside volatility that would shake us to the core. But what we are experiencing now is beyond even what I thought could happen. This is a wipe-out that will basically eliminate at least another 35% of the junior mining companies that are currently still in business. This is after those who have already shut their doors. Many more are hanging by their fingernails right now. I thought by moving towards those companies with the best assets or near-term production stories that we would protect ourselves until the dust you spoke about settled. I...

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An Easy Way to Solve the Biggest Problem Facing Investors Today

“All income-generating assets are below their average yield… and most are near all-time lows.” That’s what master researcher James O’Shaughnessy told the Big Picture Conference earlier this month. He went on to say that he believes the biggest problem facing investors today is income. You see, James’ research shows that now is the toughest time in 140 years for investors trying to generate income. But he also revealed a simple solution you can easily put to work today… Jeff showed people what to do with their money during crisis conditions and how to profit in 2014. He also put together a special offer where you can get one of his research services for free.   James has made a career of looking back at history to find insights into what’s happening today. In his fantastic book, What Works on Wall Street, he ran the numbers on nearly every investment idea you could dream up. (I keep a copy on my desk at all times.) And he’s built a successful money-management business that invests around $ 5 billion using strategies based on his research. Today, James’ research shows that most income investments, especially bonds, aren’t paying the kinds of yields investors need to survive. Bonds have been in a multi-decade bull market. As prices go up, yields come down. Thirty-year U.S. Treasurys only pay 3.65% as I write. And James believes they’ll be a losing proposition over time… “Long-term bonds have done very well for a very long time,” he says. “No one remembers that long bonds lost 68% after inflation from 1941-1981… but it can happen again.” You read that right… After inflation, “safe” long-term bonds lost 68% of their value from 1941-1981. Today, with high prices and low yields, we could be in store for another multi-decade bear market. James believes the best thing you can do to generate income is to avoid bonds and buy international stocks that pay dividends. Even during the greatest period in history for long-term bonds (1981-2011)… you’d have beaten them by simply owning global dividend-payers. Right now, he believes global dividend-payers are the easiest and safest way to generate income. And I’ve found an easy way to make the investment. This fund holds 100 of the best global dividend-payers. And it only holds companies that have consistently paid big dividends. Based on history, this is a winning strategy. The index IDV tracks has crushed the stock and bond markets since its creation in 1998. Over the last 15 years, this basket of global dividend-payers more than doubled the return on 30-year Treasurys. And it more than tripled the return of U.S. stocks. Importantly, this fund...

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$1500 SILVER Mike Maloney on Gold & Silver Bullion Investing

SILVER Mike Maloney on Gold & Silver Bullion...

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Investing Legend: There Is No “Equity Risk Premium”

The following is an excerpt from a recent issue of Private Wealth Advisory. As noted yesterday, generally speaking stocks today are showing all of the hallmark signs of topping out. The market is overpriced, overbought, the smart money is selling, CEOs are bearish, market breadth is shrinking and earnings growth looks poor. Now, I am not officially calling a top in the market today. But I do want to alert you that a top of some kind, possibly major, is forming. In terms of predicting how far the market will fall, we first need to consider that the stock market is in a bubble. Historically, bear markets feature a drop of 32%. Bursting bubbles on the other hand, usually feature a drop of 50%. Indeed, if you look at the last two market Crashes over the last 13 year, all of them featured drops of roughly 50% or so. Based on this measurement, this would mean the S&P 500 falling to sub-900. Other indications of a market top forming can be drawn from historical price movements. Mark Hulbert from Marketwatch recently noted that of 35 market tops since the 1920s, the preceding bull market has seen stocks rise 21% in the previous 12 months. The S&P 500 just hit a 23% gain in the last 12 months (see Figure 5 below). So we’re on track with a market top in terms of historic price trends. Finally, there are major valuation concerns for the markets today. Since the S&P 500’s founding in 1926, stocks have returned an average of 11% per year. Consider the following: had you invested $ 10,000 in the S&P 500 in 1926 (at that time it was the S&P 90) with dividends reinvested today it would be worth over $ 33 million. Without dividends reinvested, it would be worth $ 1.9 million. Put another way, without dividends, which are paid out of earnings, stocks return only slightly more than Treasuries, though with considerably more risk. Thus, the ideal time to invest in stocks is a time in which future earnings yields from stocks are expected to grow considerably. This would indicate that dividends are likely to grow, thus allowing for a considering stock market “premium” in terms of returns. Today is not such a time. As famed value investor John Hussman notes, the 10-year Treasury bond is currently yielding 2.6%. Hussman believes stocks will average 2.8% per year going forward for the next 10 years. Thus, there is literally no “equity risk premium” at this time. Put another way, the benefits of owning stocks based on future earnings is simply NON-existent. The time to prepare for...

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