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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NIA: Proof Gold Stocks Most Undervalued in History

On Sunday when NIA suggested January 2015 GDX $25 call options, we showed you a chart of the HUI/Gold ratio. The HUI index for the most part tracks the same exact stocks owned by GDX. The HUI/Gold ratio shows how undervalued gold stocks are vs. the price of gold. The HUI/Gold ratio has a 17 year average of 0.37 and currently is down to 0.164, the lowest it has been since 2001, at the very beginning of gold’s secular bull market.   However, this doesn’t tell the complete story. Gold miners have seen their expenses go through the roof – a fact that proves there is massive price inflation, despite what the gold bears say. A big portion of a gold miner’s expenses are related to energy. Therefore, the Gold/Oil ratio is another important chart to look at. In June/July of 2008, when oil soared to well over $130 per barrel, the Gold/Oil ratio declined to below 7. From year 1970 through today, the Gold/Oil ratio has averaged 15.19. Currently, we have a Gold/Oil ratio of 12.22.   A low Gold/Oil ratio is bad for gold miners, because their expenses are high relative to the gold they produce. The current Gold/Oil ratio, although below the long-term average, is not at an extreme level like in June/July of 2008. Oil prices, although expensive, are not high enough to severely hurt gold miners in a way that justifies a HUI/Gold ratio of less than half its long-term average. If we currently had a Gold/Oil ratio of 7, a HUI/Gold ratio of 0.164 would be justified, but right now there is no justification to the current artificially low HUI/Gold ratio.   Below, we are once again going to provide you with the HUI/Gold ratio chart we showed you on Sunday. After that we will show you a chart of the Gold/Oil ratio. Following those two charts is a chart of a new ratio that NIA has invented – the Gold/Oil to HUI/Gold ratio. NIA’s Gold/Oil to HUI/Gold ratio has a 14-year average of 37.68. A high Gold/Oil to HUI/Gold ratio of well above its long-term average indicates that gold stocks are undervalued relative to their potential profitability.   Historically, any extreme highs in the Gold/Oil to HUI/Gold ratio were an excellent time to buy gold stocks. In December of 2000, when it spiked up to above 60, the HUI was priced at 177.61. When the Gold/Oil to HUI/Gold ratio returned to a more normal level of 39.63 in June of 2001, the HUI was up to 276.24 for a gain of 56% in six months. In December of 2001, when it spiked up to...

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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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NIA: Gold’s Previous Bottoms vs. Today

Please disregard our email from Sunday evening, which stated that gold’s high of $850 per oz in 1980 is the equivalent of $5,301.24 per oz today after adjusting for growth in real U.S. money supply and above ground gold stocks. Gold’s 1980 high of $850 per oz is actually the equivalent of $7,944.83 per oz in today’s economy. Furthermore, gold’s 1976 low of $103.50 per oz is the equivalent of $1,096.12 per oz in today’s economy. Gold’s 1985 low of $285.75 per oz is the equivalent of $1,276.25 per oz in today’s economy.   The average of gold’s lows in 1976 and 1985 are the equivalent of $1,186.19 per oz in today’s economy. This is within 0.5% of gold’s June 28, 2013, low of $1,192 per oz, which gold once again dipped to last week. This could be a double bottom for gold.   During its 1971-1980 nine year bull rally, gold rose from a low of $35 in 1971 to a high of $195 in 1974 for a gain of 457.1%, followed by a dip to a low of $103.50 in 1976 for a decline of 46.8%, and then an additional gain of 721.3% to a high of $850 in 1980 – for a total gain of 2,329%. After the Fed raised interest rates to 20%, gold over the following five years lost 2/3 of its value, bottoming in 1985 at $285.75.   Mid-way through its secular bear market, when gold dipped 46.9% to a low on August 25, 1976, of $103.50 per oz: the real U.S. money supply as of August 23, 1976, was comprised of: 1) currency component of M1: $77.5 billion, 2) total checkable deposits: $219 billion, and 3) total savings deposits at all depository institutions: $185.9 billion – for a total real money supply of $482.4 billion.   Currently, the real U.S. money supply as of December, 16, 2013, is comprised of 1) currency component of M1: $1.1596 trillion, 2) total checkable deposits: $1.4828 trillion, 3) total savings deposits at all depository institutions: $7.1513 trillion – for a total real money supply of $9.7937 trillion. The real U.S. money supply has grown 20.30X in size since August 23, 1976.   According to the World Gold Council, the world’s total above ground gold stocks mined throughout history as of the end of 2012 were 174,100 tonnes, and after production from this past year – their figures will likely show total above ground gold stocks of approximately 177,000 tonnes. However, in recent days, several NIA members have contacted us with compelling evidence that the World Gold Council’s data is overstating above ground gold stocks by approximately...

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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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2014 – Helicopter Money is Coming! Jim Rickards, Currency War Update

PARTIAL TRANSCRIPT: FutureMoneyTrends.com: Greetings and thank you for joining us at FutureMoneyTrends.com. I’m here at the Casey Summit with Jim Rickards. He’s the author of Currency Wars. He has a new book coming out as well. What is it called? James Rickards: It’s called The Death of Money: The Coming Collapse of the International Monetary System. It’ll be out in April; April 8th is the publication date. I finished writing it about a month ago and we’re in editing. It’s a funny thing, Dan. We live in a world of what I call instant digital gratification, whether it’s YouTube or Twitter, everybody wants to put everything out there immediately, but a book is still an old-fashioned process. It takes a year to write it and edit it and bind it, so it’ll be out in April and I’ll be talking more about it between now and then. FutureMoneyTrends.com: It should be very interesting because I’m sure some of your analysis will have either been proven right or proven wrong in the book, am I right? James Rickards: Well, that’s right, I mean it is forward-looking, so I say a lot of things in the book that I will be looking over in the years ahead, but sure. It’s something coming out in six months, it’ll be a good test to see how things play out. We’ll see if they play out as expected. That’s exactly right. FutureMoneyTrends.com: I’ve always wondered in the dollar crisis scenario if right on the cusp of the market just melting down and going crazy that Obama and whatever Fed chairman of that time, say, next to him and they’re instituting a gold standard. Do you think it’s possible that they, right before a major crisis is about to happen, they come in and switch the currency? James Rickards: I don’t think so. I think there are several scenarios: one is that we get to a gold standard by design. In other words, people look at the system and they say that it really is not sustainable, it really is based on confidence, but we’re in the process of eroding confidence. There is no exit from quantitative easing. We should say there’s no good exit. You can back away from it, but then you’ll implode the economy in a deflationary crash. Or you can keep going and eventually cause a loss of confidence in the dollar and then have a hyper-inflationary crash, so you got a crash either way. One looks like the Great Depression, one looks like the late ’70s but worse. Those are the only two paths, but there’s no other path. There’s...

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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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David Morgan Silver Price Predicition

Gold was always considered as solid and save instrument. Many Countries currency was based on Gold reserves. People loved to make investment in Gold. But now this Gold is in crisis. These Gold crisis are linked with economic, financial, debt and currency crisis. Anyhow, too much dependence on one instrument always brings down fall. This video is showing What the Gold and Debt Crisis...

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Get ready, the silver price is heading up, Interview with David Morgan

Get ready, the silver price is heading up, Interview with David...

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▶ Max Keiser on Bitcoin Currency

Gold was always considered as solid and save instrument. Many Countries currency was based on Gold reserves. People loved to make investment in Gold. But now this Gold is in crisis. These Gold crisis are linked with economic, financial, debt and currency crisis. Anyhow, too much dependence on one instrument always brings down fall. This video is showing What the Gold and Debt Crisis...

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