4 Pillars of Debt in Danger of Collapse

By Nomi Prins

This post 4 Pillars of Debt in Danger of Collapse appeared first on Daily Reckoning.

Last month I was in a series of high-level meetings with members of Congress and the Senate in Washington.

While there’s been major news about the Supreme Court, my discussions were on something that both sides of the aisle are coming to consensus over.

You see, issues that impact your own bottom line are way more about economics than they are about politics. On Capitol Hill, leaders know that. They also know that voters react to what impacts their money. That’s why, behind the scenes, I’ve been discussing issues focused on protecting the economy.

Behind closed doors, we’ve been working on how to shield the economy from Too Big to Fail banks and how the U.S. can better fund infrastructure projects. These are initiatives that all politicians should care about.

Underneath the surface of the economy is a financial system that is heavily influenced by the Federal Reserve. That’s why political figures and the media alike have all tried to understand what direction the system is headed.

Also last week I joined Fox Business at their headquarters to discuss the economy, the Fed and what they all mean for the markets. On camera, we discussed this week’s Federal Reserve meeting and the likely outcomes.

Off camera, we jumped into a similar discussion that those in DC have pressed me on. Charles Payne, the Fox host, asked me what I thought of new Fed chairman, Jerome Powell, in general. Payne knew that I view the entire central bank system as a massive artificial bank and market stimulant.

What I told him is that Powell actually has a good sense of balance in terms of what he does with rates, and the size of the Fed’s book. He understands the repercussion that moving rates too much, too quickly, or selling off the assets, could have on the global economy and the markets.

Savvy investors know that if the U.S. economy falters, because everything is connected, it could reverberate on the world.

That’s why I could forecast that the Fed would raise rates by 25 basis points last week ahead of time. And they did. However, there’s now even less reason to believe the Fed will raise rates at the next meeting in December.

Why is that?

First, Powell has made clear that he doesn’t see inflation heating up as a threat. Second, even though last quarter’s GDP growth figures were relatively high, the reality is that much of that growth came from trade war spending and preparation.

Another big chunk of the GDP growth the U.S. has experienced is based on debt. When considering the real problem of debt, the record consumer debt numbers in the U.S. paints a picture so that you can see how and why the Fed will likely have to reverse course.

At a time when we find ourselves “celebrating” the 10-year anniversary of the collapse of my old firm, Lehman Brothers, and the government bailout of banks, the structure of big banks has really not changed. They remain Too Big to Fail.

The big banks got subsidies and were propped up by quantitative easing (QE) to resurrect themselves into appearing financially healthy. The same cannot be said of all consumers in the country.

It’s consumers that have now piled on debt — and at much higher interest rates than the banks and large corporations have been given.

Indeed, to make ends meet, there have been four main pillars of consumer debt that have hit new records.

According to a recent New York Federal Reserve Bank report, total consumer debt is at higher levels now than going into the financial crisis.

By breaking down what that debt is, you can best understand how to navigate the world of finance, understand your own portfolio better and make more sound investments.

Here they are:

Overall Household Debt.

The state of household debt, which literally takes into account the combined debt within a given household, continues to flash red. According to a 2017 household financial survey by the Fed, “About one-quarter of U.S. adults have no retirement savings. And 41% say they would not have enough savings to cover a $400 emergency expense.”

The overall level of consumer debt has hit a new record. It’s now $618 billion higher than it was at its prior peak at $12.68 trillion during the third quarter of 2008 – right before the onset of the financial crisis.

The total borrowing of Americans hit $13.29 during the second quarter of this year. That’s up $454 billion from a year earlier. The fact is that borrowing has risen for 16 consecutive quarters.

Credit Card Debt.

The total of U.S. credit card loans has increased by $45 billion this year to a massive $829 billion total.

Despite cheap rates for banks, the average credit card interest payment rate is 15.5%. It was at 12.5% only five years ago. And, yet people keep borrowing.

The total revolving credit card debt now stands at a record of $1.04 trillion, higher than its last 2008 peak.

Borrowers have paid a painful $104 billion in credit card interest and fees in just the last year. That figure is up 11% from the prior year, and up 35% over the past five years.

What you should know if you have a credit card is that if the Fed continues to raise rates, that any associated debt will become even more expensive.

Student Loan Debt.

During my meetings in Washington and with even media figures, student debt continues to be a central topic of concern. The fact is, student loans cannot be given bankruptcy status and therefore are much more complex when evaluating the U.S. economy.

Currently, the amount of student loans grew to $1.41 trillion in the second quarter of 2018. That figure has nearly tripled since the beginning of the financial crisis. Student loan debt is now the second highest consumer debt held.

That crippling amount of debt makes it harder for graduates to find jobs that will help them alleviate the costs of their education. It also means that those with student loans will have …read more

From:: Daily Reckoning

Learn How to Earn… and Actually Keep Your Earnings

By Kyle Smith

Robert Kiyosaki

This post Learn How to Earn… and Actually Keep Your Earnings appeared first on Daily Reckoning.

In the U.S. we are obsessed with football—the American kind.

Every year, each of the 32 professional teams perform a draft where they pick the best player from college teams across the country and pay them extraordinary amounts of money. The National Football League Commissioner stands at the podium in front of a live and nationally televised audience and announces their name along with the team they will call home. For some, this is the culmination of a life-long dream.

For these young men in their 20’s, getting signed to a multimillion-dollar contract is also a part of that dream. For most, they will receive more money over the next four or five years than they could ever imagine. Families and friends, and shady advisors, have been waiting for this payday since the moment they started playing the game.

The worst part of this fairytale is that 78 percent of NFL players will go bankrupt within two years of retirement according to Sports Illustrated.

Whether it’s football, the lottery, an inheritance—when people suddenly come into money, more often than not, they are unprepared for how to deal with the windfall.

NFL cornerback Richard Sherman credits Rich Dad Poor Dad for his success with money after receiving a $57.4 million-dollar contract.

“None of us really grew up with… financial literacy,” Sherman told CNBC Make It.

Sherman says he sees players taking more control of their financial future: “People in my sport, in my field, are definitely becoming more educated and trying to be more intelligent with how they play for the money and understanding where their money is going.”

Two Mindsets About Work

My poor dad said, “Job security is the most important thing.”

My rich dad said, “Learning is the most important thing.”

These two statements represent two fundamentally different mindsets about work. When you look at work as simply a way to make money, so you can then do other things, it is impossible to think of it as a means to any other end.

But there are also those who will have a light turn on, realizing that work can be a path to something greater, even if you aren’t paid or are paid very little. In order to be successful, you have to work to learn, not to earn.

It’s all about what your goals actually are, as you put work into something…

In fact, mindset most often is the dividing line between those who are successful in life and those who are not. In the NFL there are many players who do not have the natural skills and talents, but they thrive. They show up, put in the work, and continually learn and grow. They listen to their coaches. They surround themselves with smart people who lift them up instead of pulling them down. They have a mindset of success—the mindset of a pro.

If only players put in as much work to learn about money as they do on the field, more players would be prepared to handle their new-found fame and fortune.

The Learning Mindset

In the movie Jerry Maguire, there are many great one-liners. But there is one that I found particularly truthful. Tom Cruise’s character is leaving his high-paying job to start his own agency after being fired, and he says, “Who wants to come with me?” The whole place is frozen and silent, looking down at him. Finally, one woman pipes up and says, “I’d like to, but I’m due for a promotion in three months.”

Sadly, as mentioned above, this is the mindset of most people when it comes to work. Rather than look at work as an opportunity to grow and learn, they look at work as a necessary evil and try to get as much money from their job as possible.

As a young man, I faced the same decision as the woman in Jerry Maguire. After graduation from the Merchant Marine Academy, I had a good career ahead of me. My first job was on a Standard Oil of California oil-tanker fleet as third-mate. I made a lot of money for the time, $42,000 a year, including overtime, and only had to work seven months of the year. My poor dad was very happy.

After six months, however, I resigned my position with Standard Oil and joined the Marine Corps. My poor dad was devastated, but my rich dad congratulated me.

The reason I joined the Marine Corps was to learn new skills. I wanted to learn how to be a pilot and to learn how to lead others into difficult situations. I knew that the leadership skills I learned in the Corps would benefit me greatly in life and business.

After my tour of duty, I had the opportunity to get a steady paying job as a commercial airline pilot. Instead, however, I took a job with Xerox as a salesman. Again, my poor dad was devastated, and my rich dad was happy. Though I could have had a comfortable life as a pilot, I wanted to learn the skill of sales. I knew that skill, coupled with the leadership skills I learned in the Marine Corps, would make me rich.

Work to Learn Not to Earn

The NFL has a dark and clever nickname: “Not for Long.”

Careers are short-lived. They never know when they’ll get cut or get injured. They can do nothing but hope for a long career.

Luckily the NFL is working hard to educate these young players and prepare them for life after football. They learn about finances, insurance, and how to handle their new lifestyle.

Some take it more seriously than others.

Will you work to earn, holding onto security over opportunity? Or, will you work to learn (and get a financial education), giving up some security to embrace greater opportunity?

Most people will follow the conventional wisdom and choose to work to earn. But if you want to be rich, I recommend that you work for what you want to learn rather than what you want to earn. Figure …read more

From:: Daily Reckoning

The Real Reason the Market’s Crashing

By Brian Maher

This post The Real Reason the Market’s Crashing appeared first on Daily Reckoning.

832 points the Dow Jones lost yesterday — its third-largest point drop in history.

The S&P and Nasdaq were also knocked flat.

Markets peeped out of their foxholes this morning, apprehensively… like battle-shocked troops after an artillery siege.

Down rained another barrage…

The Dow Jones was down another 546 points today. The S&P, another 57.

The Nasdaq, which showed some fighting elan early this morning, ended the day 93 points lower.

The commander in chief has stepped forth to assign blame:

“The Fed has gone crazy.”

“I think the Fed is making a mistake. They’re so tight,” he added in targeted criticism.

Just so.

But the Fed’s mentation has been a long-standing question. And its tightening is far from news.

So… why exactly did the Dow Jones take a 1,378-point trouncing these past two days?

Where are the reinforcements?

Why no cavalry to answer the desperate bugle?

Today we penetrate the fog of battle… tune out the deafening din… and seek our answers outside official channels…

The story by now is familiar enough.

In response to (apparently) strong economic data recently released, long-dated Treasury yields increased too much — too fast.

The market was taken unawares, its trousers wreathed around its ankles… and stocks sold off in red-faced panic.

Explains Michael Farr, CEO of Farr, Miller & Washington:

Clearly, stocks are spooked by higher rates and maybe some inflation that seems to be creeping in. That suggests the Fed will keep raising rates, and that’s taking the wind out of the stocks that have done the most, particularly in the tech sector.

Charlie Ripley, senior strategist at Allianz Investment Management, in confirmation:

[Yesterday’s] equity sell-off is a reaction from investors finally realizing we are in a higher interest rate environment, and given the elevated level of stocks, market participants were likely looking for a reason to sell. Higher interest rates typically bring on tighter financial conditions, which could dampen growth going forward, and equity markets are reacting to that.

Yes, but returning to our previous question:

Why the severity of the sell-off?

Why no late cavalry charge to turn the battle?

Scratching his head, for example, is Mark Stoeckle, CEO of Adams Funds:

It really doesn’t make any sense to me that some of these stocks are getting beaten up as much as they are.

In search of clues, we thumb the calendar back to February… and the 11% correction that shook the stock market.

We stumble upon an immediate likeness.

February’s sell-off also came during a similar “blackout period” that obtains today.

MarketWatch, dated Sept. 18, citing research by Goldman Sachs:

If stocks do become volatile in the coming month, that wouldn’t mark the first time in 2018 that blackout periods have coincided with market declines. In fact, the issue was cited as being a contributing factor to sell-offs in early February. At the time, Goldman wrote that the blackout issue was “likely intensifying the decline” in the major averages, which resulted in corrections… for both the Dow Jones industrial average and the S&P 500.

We find The Wall Street Journal trumpeting a similar alarm, dated Sept. 17:

Because major indexes have been unusually calm lately, sudden outsized market moves during the blackout period could sour investor sentiment toward stocks, some analysts say. That occurred when the market tumbled in February.

Scott Glasser, CIO of ClearBridge Investments, also warned in early September:

[These] provide a tremendous amount of support to the market, and with blackout season coming, we won’t have that added measure of support.

To what strange blackout period do we refer?

A blackout on stock buybacks.

Earnings season unofficially begins tomorrow.

Regulations generally forbid corporations from conducting buybacks the month prior to releasing earnings — lest they face suspicion of insider trading.

Hence markets have lately groped in the darkness of a “blackout period.”

Some 86% of S&P components were under blackout as of Oct. 5, according to Goldman Sachs.

That is, 86% of S&P components have been unable to conduct buybacks this past week.

And by some occult, midnight turn of fate markets have gone to pieces this past week… while the blackout has been in effect.


Not according to Jasper Lawler, head of research at London Capital Group:

The timing of the sell-off just days before U.S. earning season unofficially kicks off on Friday is more than a coincidence.

More than a coincidence… we must agree.

In reminder, corporations buy back their own stocks to increase their stock price. Buybacks reduce the amount of shares outstanding and artificially inflate earnings per share.

Buybacks have provided much of the helium that has levitated markets to dizzied heights.

Corporations, in fact, represent the largest source of demand for U.S. stocks.

Goldman Sachs estimates S&P buybacks this year will exceed last year’s by a thumping 44%.

And buybacks remain on pace to exceed $1 trillion this year — a record.

“The impact of buybacks is so profound,” argues CNN Business, “that some worry about how stocks will hold up without them.”

February provided one answer.

These past two days may be providing another…

They almost precisely mirror February’s correction in detail.

But now that earnings season is upon us, the blackout is drawing to a merciful end. A blizzard of fresh buybacks is likely on tap — and none too soon.

If markets find their legs in the upcoming days, you may therefore have your explanation for the past two days.

If stocks continue into the depths regardless, we suggest you drop to two knees… lower your chin to your chest… and pray.


Brian Maher
Managing editor, The Daily Reckoning

The post The Real Reason the Market’s Crashing appeared first on Daily Reckoning.

…read more

From:: Daily Reckoning

Why the Middle Class Is Screwed

By Robert Kiyosaki

Robert Kiyosaki

This post Why the Middle Class Is Screwed appeared first on Daily Reckoning.

Last December, Congress passed the largest U.S. tax system overhaul in more than 30 years—a $1.5 trillion tax cut, but America’s middle class will see less than a quarter of the savings under the legislation.

In 2018, middle-income households—those earning $20,000-$100,000—will see a tax cut of about $930 on average. Just about half of American adults live in middle-class households, down from 61% in 1971 according to the Pew Research Center. For a while now, I’ve been predicting that the middle class would disappear and that we would have only two classes of people in the U.S., the poor and the ultra-rich.

The middle class is made up of people who work for a living, earning wages doing carpentry, plumbing, factory work, and all types of services. They live paycheck to paycheck with very little in savings or investing in retirement.

Those earning more than $500,000 a year will get $61 billion in cuts in 2019. This includes income earned by pass-through businesses such as partnerships and S-corporations that pay taxes on individual returns. This is because tax cuts for small businesses will help boost the economy—helping job growth.

This isn’t a story of economic gloom, it’s a financial education that you won’t hear through mainstream media. There are four financial forces that cause most people to work hard and yet struggle financially:

1. Taxes

2. Debt

3. Inflation

4. Retirement

Which one of these four affects you personally?

If he were alive today, my poor dad would have struggled financially even without his bad investments. He most likely would not have been comfortable. Today, the middle class is quickly disappearing. But it’s a different sort of disappearance than people think. As Jim Rickards writes, “The middle-class numbers are not necessarily getting smaller. The problem is that middle class doesn’t mean what it used to mean.” I believe the population is actually dwindling, but this is an important understanding. There is still a population living and breathing in the 40-60% mid range of earnings. But because all the ways my poor dad achieved a level of financial comfort no longer work in today’s economy, that distinction doesn’t entitle you to the security you would have had even twenty years ago.

Today, savers are losers, houses are worth less and less, there are no pensions, and essential goods for life are more and more expensive. Today, inequality is higher than it’s ever been.

How the Rich Get Richer

Here’s the kicker. The rich know how to use these forces to make more money rather than have them steal their wealth.

The rich know how to make investments and run businesses that allow them to pay little to no taxes.

The rich know how to use debt and other people’s money to make investments that provide constant cash flow while paying that debt off.

The rich know how to make investments that hedge against inflation and make them money while others are falling behind.

The rich know how to utilize all these forces to have a secure retirement provided by cash-flowing assets.

The rich can do all of this because they understand how money works and have a high financial IQ.

How So-Called Experts Keep People Poor by Limiting Their Mindset

The problem with conventional advice about money is that it’s not only conventional but also often wrong. In fact, much of the money advice out there is designed to keep you from becoming poor rather than to inspire a mindset to grow rich.

The following advice is most often peddled to the middle class:

1. Live below your means

2. Limit takeaways

3. Cash over credit

4. DIY projects

5. Talk to your family about budgeting

6. Set an example

7. Write it down

Broadly, these can be condensed into three broad categories of bad budgeting advice that are foundational to members of the middle class.

Bad Advice #1: Live in a world of scarcity

The classic mantra to “live below your means” is one of the most destructive things you can teach someone about money. It teaches people to think in terms of scarcity. “You only have so much, so you must be careful not to run out.” It kills drive to create more.

Bad Advice #2: Set Limits

When you live in a world of scarcity, you must find ways to conserve what you have. So, naturally you set limits. Not going out to eat, creating systems to limit spending, and doing everything yourself instead of hiring an expert; all are ways those with a scarcity mindset set limits to “save” money. Unfortunately, they sometimes don’t save money, and even when they do, they feel unfulfilled, stressed, and don’t get to enjoy the things they want to.

Bad Advice #3: Set the wrong example

Ultimately, if you follow the advice of conventional money experts and model this behavior for your family, you’ll continue to raise generations who struggle to make ends meet financially. Worse yet, you’ll teach them to see the world as one of scarcity, limiting their mindset and potential in the process.

What Can You Do?

When I do any sort of interview, whether for a news outlet or a blogger, the first question I usually get asked is about why I wrote Rich Dad Poor Dad. I always answer that it was because I saw the financial crisis of today coming and I wanted to help as many people as possible to get out of the rat race.

The second question is usually about my relationship with Donald Trump. They want to know if I believe that Trump is a great President and will save America. Even though I have great respect for Donald, I don’t think it matters who is in the White House. It is the banks and Wall Street that control our money—and ensures money control your life.

Today, the middle class has exchanged its wealth for handouts. One explanation is that handouts feel securer than self-reliance. This is a fine sentiment until one day you wake up and realize that you’re poor. It’s even more frightening when you realize the government you rely on is …read more

From:: Daily Reckoning

INSIDE: The Holiday Shopping List That Pays YOU!

By Zach Scheidt

Zach Scheidt

This post INSIDE: The Holiday Shopping List That Pays YOU! appeared first on Daily Reckoning.

If there’s one thing I hate more than shopping, it’s last minute shopping.

Last year, I did most of the holiday shopping for the family online. So I thought I had all my ducks in a row. But when one of my daughter’s gifts didn’t show up in time, I had to scramble.

And so I ventured out to our local mall. It was just me and about 20,000 other shoppers trying to get that last minute gift before heading home for the holidays. Talk about a stressful situation!

This year, I’m double checking to make sure I have enough time to enjoy the holidays with my family.

And at the same time, I want to help you avoid last minute stress.

Only instead of getting your holiday gifts on time, I’m talking about helping you get your holiday investment gains before the Santa Claus rally passes you by!

Here’s how to make the most of the holiday market opportunities…

A Powerful Holiday Rally is Just Around the Corner

It may be too early for stores to put up their Christmas displays. (I think proper etiquette is to wait until at least November 1st).

But it’s not too late to get prepared for the stock market holiday rally.

This year, you’ve got more opportunities than normal to cash in on this rally. And it all ties back to the tremendous job market that continues to grow in the U.S.

Last week, the payrolls report was released, showing that unemployment has now hit the lowest level since 1969. Essentially, anyone who truly wants a job can find one. And more employees are leaving their existing positions to find new and better jobs.

So the number of people in America with a steady income and money to spend on the holidays is near an all-time high. And that’s great news for retail stocks.

Just yesterday, investment firm Deutsche Bank upgraded Walmart. The big-box retailer is expected to compete well against Amazon and grow its market share this holiday season.

Other retail stocks are also moving higher as Americans spend newfound wealth on everything from merchandise to experiences. And you better believe this trend is going to continue into the holiday season.

The big question for us as investors is how to profit from these rising sales and fatter profit margins.

The Time to Get In is Now!

If you’re waiting to see Christmas lights in your neighborhood stores before buying your favorite retail stocks, let me offer you a word of caution.

Waiting until the holiday season is upon us is a lot like waiting until Christmas Eve to start shopping. You’re going to have to fight through crowded markets and pay top dollar for anything you buy.

That’s because investors are already scouring the markets for good opportunities. And they’re already reacting to the strong job market. So the sooner you get your retail stocks bought and in your brokerage account, the more time you’ll have to turn a profit as other investors buy after you and push up the stock price.

This week marks the start of the traditional third quarter earnings season.

Which means corporations will be not only telling us how they did during the last period, but also offering projections for the final quarter of 2018.

As those projections come in, the stocks should start to rise ahead of the holiday shopping season. And then there will be additional catalysts along the way. (Like sales estimates on Black Friday, November and December monthly sales reports, and finally the fourth quarter earnings reports which will start hitting the wires in January.)

By locking in your investments now, you’ll be able to sit back and watch these news events drive the value of your investments higher, giving you some extra income to buy gifts for the special people on your list.

I suggest looking closely at apparel stocks, specialty merchandise companies, and even experience stocks like SeaWorld Entertainment (SEAS) and AMC Entertainment (AMC). After all, these are the places where Americans with great jobs will be shopping.

Don’t wait until these stocks move higher. Get your stock market shopping done today!

Here’s to growing and protecting your wealth!

Zach Scheidt
Editor, The Daily Edge

The post INSIDE: The Holiday Shopping List That Pays YOU! appeared first on Daily Reckoning.

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From:: Daily Reckoning

Buy a Fancy Car and Get Richer at the Same Time

By Robert Kiyosaki

Robert Kiyosaki

This post Buy a Fancy Car and Get Richer at the Same Time appeared first on Daily Reckoning.

Everyone loves to buy nice things. Those that say they don’t… well, they’re liars who “can’t afford” to do so.

From infancy, before we can even talk, we’re wired to chase shiny things. We’re also wired to consume as much as we can. It’s the principle of scarcity that we’ve inherited from our hunter-gatherer days. You never know when you won’t have what you need, so you better consume as much as you can today.

This explains why so many people have a hard time controlling their spending. According to Bloomberg.com, in August 2018, “Total household debt rose 3.5 percent from a year earlier in the April-to-June period to a record $13.3 trillion.”

It seems that we never learn… and that we’re doomed to repeat our mistakes.

Riding High

As it stands today, there is a euphoria going on in the markets that defies fundamentals.

The Dow Jones Industrial average is hovering above 26,000. It’s being dubbed the “Trump Bump,” with stocks rising 31% after his first year in office. Apparently, the markets are feeling very good about President Trump’s policy agenda… and are banking on its being implemented.

How great are they feeling?

Well according to USA Today, “Encouraged by a strong job market and vibrant housing sector, shoppers showed last month that they are shrugging off increasing interest rates and buying new vehicles at a steady clip.”

In a WSJ article, “What Do You Buy When Trump Wins? A Bentley,” writer Chester Dawson explains this bump in luxury car sales, “Dubbed the ‘wealth effect’ by economists, perceived gains in portfolio values can prompt ultra high net worth buyers to splurge on hard assets such as fine art, real estate and luxury cars. Some in the auto industry also are seeing a ‘Trump bump’ based on expectations of fiscal stimulus and potential tax cuts under the new administration that will boost corporate profits and keep stocks on the ascent.”

High Net Worth Does Not Equal High Financial Intelligence

This goes to prove that “ultra high net worth” does not equal ultra-high financial intelligence.

Buying luxury goods because the market is overheating is the very definition of counting your eggs before they hatch.

In most cases, the folks who are buying these luxury goods aren’t doing so because they are actually wealthier. They are doing so because they look wealthier on paper.

They have not sold their stocks. They simply hold stocks that, for now, have higher value. But one only has to look at the dotcom bubble burst of the early 2000’s and the real estate crash of the late 2000’s to realize that wealth on paper and true wealth are two different things.

The story in the WSJ about luxury cars caught my attention because it is a good parallel to another story I like to tell about when I wanted a Bentley (whose sales are up 10.8% according to the WSJ since Trump, coincidentally).

How to Buy a Bentley

Some years ago, I talked with my wife, Kim, about my desire to purchase a new Bentley. We both agreed that it would be easy for me to pay for the car in cash. We had the money.

But having the money wasn’t the issue.

As big believers in mindset—and delayed gratification—we both agreed there was a better way for me to get in the driver’s seat of this new dream.

Both Kim and I sat down and determined what it would cost for the new car on a monthly basis—what our cash outflow would be. We then, together (and this was fun) went shopping not for a new Bentley but instead for a new asset that would pay for the Bentley.

Kim and I found a great asset, and after six months we had enough cash flow from the asset to pay for the monthly costs of my new car—and then some. The best part of the whole exercise is, not only did I have my new Bentley but I also had a cash-flowing asset that actually increased my wealth, not just made me look richer on paper.

Two Ways to View Wealth

This is a simple story, but an important one.

There are two ways to view wealth.

One is on paper. That is how most news outlets, and frankly, most CPAs view it. The traditional balance sheet is smoke and mirrors, accounting tricks to make you look wealthier than you are.

The other way to view wealth is the Rich Dad way. It is much simpler. It’s based on this one important truth. An asset is anything that puts money in your pocket. A liability is anything that takes money out.

Given this definition of wealth, paper assets that grow in value while providing no cash flow are not assets. They are actually liabilities since you had to pay out of pocket for them. They only become assets when you sell them. But that isn’t advantageous because then you only have the cash on hand. And cash, like electricity, is a currency. It must move somewhere else to have value. Otherwise it dies. In the case of electricity, it dies quickly. In the case of cash, it dies slowly, eroded over time by inflation.

The ultra-rich who are buying new Porches, Maserati’s, and Bentleys in this market bull run are those who are spending wealth they don’t truly have. I hope it works out for them. But if history is any indicator, it won’t. But, they have good attorneys to bail them out.

What’s scarier is when the middle class starts following suit. They are the ones that always get wiped out. And when the middle class starts spending like the rich-running up consumer debt like 2008 levels-it’s time to watch out. The markets are ready to crash.


Robert Kiyosaki
Editor, Rich Dad Poor Dad Daily

The post Buy a Fancy Car and Get Richer at the Same Time appeared first on Daily Reckoning.

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The Bull Market in Bonds Still Has Legs

By James Rickards


This post The Bull Market in Bonds Still Has Legs appeared first on Daily Reckoning.

Is the thirty-seven year bull market in U.S. Treasury notes dead?

Yields to maturity on 10-year U.S. Treasury notes are now at their highest level since April 2011. The current yield to maturity is 3.21%, a significant rise from 1.387% which the market touched on July 7, 2016 in the immediate aftermath of Brexit and a flight to quality in U.S. dollars and U.S. Treasury notes.

The Treasury market is volatile with lots of rallies and reversals, but the overall trend since 2016 has been higher yields and lower prices.

The consensus of opinion is that the bull market that began in 1981 is finally over and a new bear market with higher yields and losses for bondholders has begun. Everyone from bond guru Bill Gross to bond king Jeff Gundlach is warning that the bear has finally arrived.

I disagree.

It’s true that bond yields have backed up sharply and prices have come down in recent months. Yet, we’ve seen this movie before. Yields went from 2.4% to 3.6% between October 2010 and February 2011 before falling to 1.5% in June 2012.

Yields also rose from 1.67% in April 2013 to 3.0% in December 2013 before falling again to 1.67% by January 2015. In short, numerous bond market routs have been followed by major bond market rallies in the past ten years.

To paraphrase Mark Twain, reports of the death of the bond market rally have been “greatly exaggerated.” The bull market still has legs. The key is to spot the inflection points in each bear move and buy the bonds in time to reap huge gains in the next rally.

That’s where the market is now, at an inflection point. Investors who ignore the bear market mantra and buy bonds at these levels stand to make enormous gains in the coming rally.

The opportunity is illustrated in the chart below. This chart shows relative long and short positions in ten major trading instruments based on futures trading data. The 10-year U.S. Treasury note is listed as “10Y US.”

As is shown, this is the most extreme short position in markets today. It is even more short than gold and soybeans, which are heavily out of favor. It takes a brave investor to go long when the rest of the market is so heavily short.

This chart show relative long and short positions in major trading instruments based on data from futures markets. Black bars to the left indicate short positions and black bars to the right indicate long positions. The short position in 10-year U.S. Treasury Notes (“10Y US”) is the most overcrowded short position in markets today.

Yet, that’s exactly why the opportunity to go long Treasuries is so attractive. With all of the big players (hedge funds, banks, wealth managers) leaning on one side of the boat, it only takes a small perturbation causing lower yields and higher prices to trigger a massive short-covering rally where these short investors scramble to exit their positions and buy bonds to cut their losses.

What are the chances that bonds rally and a short-covering frenzy emerges?

They’re quite high. First of all, this pattern has happened five times in the past ten years starting in October 2008, April 2010, February 2011, March 2012, and December 2013. Each time 10-year note yields touched an interim high between 3% and 4%, the market turned around and yields crashed to the 1.5% to 2.5% range, producing huge capital gains in the securities.

In effect, the bond gurus and professional traders are betting that it’s different this time. They’re betting that the Trump economic changes and tax cuts have produced sustainable trend growth, that tight labor markets portend higher inflation, and that foreign investors are dumping Treasuries in anticipation of this inflation.

In fact, there’s good evidence that every one of these assumptions is false.

Growth in the second quarter of 2018 and forecasts for third quarter growth are solid, but there’s good reason to believe that these conditions are temporary responses to the tax cut and will not be sustained into early 2019.

In this political environment, you can only cut taxes once; there won’t be another big tax windfall in 2019 to keep this game going.

There’s also no evidence that labor markets are tight enough to cause inflation. The current 3.7% unemployment rate ignores that fact that labor force participation in only 62.7%, near the lowest in decades, and there are ten million able-bodied adults between the ages of 25-54 who are out of the workforce and not counted as “unemployed.” In addition, there are millions more working part-time jobs who would prefer full-time employment.

Once the employment figures are adjusted for involuntary part-time workers and discouraged workers, the actual unemployment rate is close to 10%, which is a depression level rate. Labor markets are not tight at all (except by using cherry-picked government metrics) and therefore there’s no reason to expect inflation.

Finally, the evidence that foreign investors are “dumping” Treasury securities is overstated. Russia is getting out of Treasuries, but other countries are picking up the slack and China is holding steady. In any case, there is ample appetite among U.S. banks to buy Treasuries so any foreign selling can be readily absorbed.

With these caveats in mind, what is the outlook for Treasury prices?

The single most factor in the analysis is that U.S. Treasury notes have traded in a range of 1.4% to 3.9% for the past ten years. Each time yields get too high, the economy slows and yields collapse. Each time yields get too low, the economy gets a boost and yields rise again.

Apart from a few good quarters of growth, which we also saw several times during the Obama years, there’s no reason to believe the U.S. economy has entered a phase of strong self-sustaining growth of the kind that will lead to inflation and higher yields.

Productivity is low, labor force participation is low, foreign competition is stiff and the new trade war acts as a break …read more

From:: Daily Reckoning

Why Amazon’s $15 an Hour Won’t Save America

By Robert Kiyosaki

Robert Kiyosaki

This post Why Amazon’s $15 an Hour Won’t Save America appeared first on Daily Reckoning.

The first federal minimum wage took effect 80 years ago this month: it was 25 cents.

Today, adjusted for inflation, it would be worth $4.19.

The Fair Labor Standards Act was passed by President Franklin D. Roosevelt. FDR saw the act as the second-most-important piece of the New Deal after the creation of Social Security and called it “the most far-reaching, farsighted program for the benefit of workers ever adopted in this or any other country.”

Last week, Amazon announced it will be raising its lowest-paid U.S. employees’ wages to $15. They said they would now lobby in Washington D.C. for an increase in the federal minimum wage and urged competitors to follow.

Raising the national minimum wage should raise everyone with steady work above the poverty line, right? Moving from $7.25 an hour to $15 would make a huge portion of the population much more comfortable, wouldn’t it?

But I ask, will an increase in wages actually shrink the gap between the rich and the poor?

I doubt it and here’s why…

At a young age, I knew I wanted to be rich. I saw my parents struggle financially and the stress that gave them.

I knew that wasn’t for me.

I wanted to buy nice things, be generous, and enjoy life worry-free.

When I told my rich dad, my best friend’s dad who was a successful businessman, that I wanted to be rich, he asked, “How do you think you become rich?”

“You make a lot of money,” I said confidently.

“That’s partially correct,” my rich dad said. “But you can make a lot of money and still not be rich.” He went on to explain how some employees and self-employed people made a lot of money but weren’t rich because they had low financial intelligence. They lost most of their wealth to high taxes and by purchasing liabilities.

The Four Forces that Steal Your Wealth

There are four things that steal your wealth: Taxes, Debt, Inflation, and Retirement.

People who make a lot of money aren’t necessarily rich because they lose so much of their income to those four forces. High-earning professionals are some of the highest taxed in the US, don’t have any investments that provide cash flow and hedge against inflation, are overly-burdened with debt, and aren’t ready for retirement—meaning they need their paychecks or they’re broke.

It’s entirely possible, for example, that two different people each making $100,000 per year could have entirely different financial lives. One could be poor and the other rich.

Here’s an example:

Of the two people who both earn $100,000, one pays 24 percent in income taxes, has a crippling mortgage, and saves money in a 401(k) that barely keeps up with inflation. The other pays nothing in taxes, owns rental properties that provide passive income that adjusts with inflation, and has a plan to use that passive income to purchase more passive income investments. Who’s richer?

It’s possible to make a lot of money and use the forces of taxes, debt, inflation, and retirement for your benefit—but it takes high financial intelligence.

Here’s the fundamental problem for the ‘rich,’ high-income employees: They have the highest tax burden, the lowest control over their retirement, and can sell only their time.

My rich dad said, “The main cause of poverty is fear and ignorance.”

His point was that most people are so afraid of not having money that they’ll do anything to get it. Usually, this means working jobs they don’t like, for people they don’t like, for a salary they don’t like.

The reasons for this are that while people know they want fine things, they don’t know of any other way to attain them than trying to work for more and more money. The more they make, the more they buy, and the more money they need to make.

A Lesson in Wages at a Young Age

As young boys, my rich dad wanted to teach Mike and me a valuable lesson about money. He did so by having us work at one of his convenience stores for three hours each Saturday. Our job was simple… and mind-numbing. We dusted the shelves each time a car drove through the parking lot, sending a wave of dust through the store doors that were open to keep the store cool since there was no air conditioning.

In return for this, we each received 30 cents—even in the 50’s, not a lot of money—and a promise to learn how to be rich. At the end of each shift, I used my money to buy comic books and went home wondering when rich dad would teach me how to be rich.

As weeks went on, I got my $0.30, but I never got the teachings I expected on how to be rich. Finally, I was ready to quit. I was making poor money for hard work and it wasn’t worth it—or so I thought. That is when I finally got my first lesson on money.

“I want to teach you the power of money,” said rich dad.

He went on to explain that our desire for more money had the effect of blinding us. Rather than see opportunity, we let our lack of money give us tunnel vision. The only option was to have him pay us more. We were working for money.

He then explained that he didn’t work for money but did what he loved and made money work for him. Our eyes were opened.

After rich dad’s financial education lesson, Mike and I put our heads together to see how we could make money work for us as well. The answer had been in front of our faces the whole time we were dusting the shelves and complaining about how little we were making.

Rich dad said, “The sooner you stop working for a paycheck, the sooner you’ll see things other people never see.”

The 8 Rules of Money

The rich know how to play by different rules when it comes to money. That’s why they don’t have to work for a paycheck.

Rule #1 – …read more

From:: Daily Reckoning

3 Things to Watch with College Savings Plans

By Nilus Mattive

Nilus Mattive

This post 3 Things to Watch with College Savings Plans appeared first on Daily Reckoning.

I want to talk to you about 529 plans, which are the most popular way for people to save for college expenses.

So let’s do that today…

A 529 plan is a tax-advantaged savings plan designed to help you save for a child’s future college costs. They are issued by inp
idual states, either directly or through brokers.

Essentially, there are two types of 529 plans — prepaid tuition plans and college savings plans.

Prepaid Plans

As their names suggest, prepaid plans lock in today’s tuition prices at eligible public and private colleges and universities.

Many of these plans are guaranteed or backed by the issuing state, and the owner or beneficiary typically has to reside in the state.

The way I see it, prepaid plans are great if you’re fairly certain that a beneficiary is going to attend a particular school (or if you’re going to choose for them!).

They might also be good for “belt and suspenders” types who want a rock-solid guarantee.

Savings Plans

In contrast, regular 529 college savings plans are more like tax-deferred retirement accounts.

They don’t lock-in college costs, but they allow you to sock away large amounts of money — some allow hundreds of thousands in contributions.

Typically, you are then able to choose from a set menu of investments such as broad-based mutual funds.

Unlike a corporate retirement account, however, you can choose what plan you want to join. And it really pays to do your homework!

Here are the three most important aspects of any 529 plan…

#1. Fees.

It’s true of nearly any investment account: The fees you pay are going to greatly affect your portfolio’s performance. And despite crackdowns on egregious fees at some 529 plans, you can still find better and worse deals.

A general rule to follow is that you will likely pay more in fees and charges when you purchase through most brokerages than you would with a similar plan purchased directly.

#2. Investment Options.

As you probably know, the quality of mutual funds varies greatly. Not just because of the fees they charge, but also because of their management teams and what investments they focus on.

In general, I favor low-cost index funds, especially in long-term accounts such as 529s.

Also, please note that — based on recent tuition growth — you’ll need an annual return of at least 6% just to keep pace… and a few percentage points more if you want to gain any ground.

That argues for a more aggressive asset allocation — meaning a higher concentration of stocks than anything else.

#3. Tax Treatment.

All 529 plans are treated the same way for Federal tax purposes: You get no upfront deduction, but your investment earnings grow tax-deferred and withdrawals for qualified education expenses are tax-free.

However, each state has individual rules about how it treats your contributions:

Many allow upfront deductions with generous limits, but you will often need to choose your home-state’s plan.

A few states allow deductions no matter what plan you contribute to.

And some states don’t offer a tax break at all!

Obviously, based on everything I just said, choosing the right 529 plan is a highly individual choice.

But here are two simple steps to get you started:

First, investigate your home state’s treatment of contributions and the plans it offers.

Then, if you’re NOT going to get a tax break, look at other low-cost plans next.

And remember that you always stay in charge of the account …

What’s especially nice about 529 plans is that they always remain the property of the account owner and not the account beneficiary.

That means YOU remain in control of whether or not to release the funds for the intended recipient, regardless of age, college acceptance, or other factors.

Most plans will let you easily transfer the assets to cover another recipient (practically any family member).

Alternatively, you can withdraw the funds and use them for something else. You’d just need to pay income tax and a 10% on any earnings that have accumulated.

In other words, you are never penalized for the amount of money you initially contributed.

That means there isn’t much risk in establishing a 529 plan for someone you care about.

As I said at the beginning, given the high costs, I think it makes a lot of sense to talk to the kids in our lives about whether earning a college degree is the best path for their particular needs, aptitudes, and interests.

But practically speaking, there will be no way to have that conversation with my own daughter until the final decision is upon us and it’s too late to adequately prepare.

So my personal plan — and the one I recommend to you — is saving now, and deciding what to do with the money later.

That’s not just a good strategy for education costs, it’s a good strategy for just about anything in life.

To a richer life,

Nilus Mattive
Editor, Rich Life Roadmap

The post 3 Things to Watch with College Savings Plans appeared first on Daily Reckoning.

…read more

From:: Daily Reckoning

When Does This Travesty of a Mockery of a Sham Finally End?

By Charles Hugh Smith

Chart 1

This post When Does This Travesty of a Mockery of a Sham Finally End? appeared first on Daily Reckoning.

Credit bubbles are not engines of sustainable employment, they are only engines of malinvestment and wealth destruction on a grand scale.

We all know the Status Quo’s response to the global financial meltdown of 2008 has been a travesty of a mockery of a sham.

Smoke and mirrors, flimsy facades of “recovery,” fake “reforms,” serial bubble-blowing and politically expedient can-kicking, all based on borrowing and printing trillions of dollars, yen, euros and yuan, quatloos, etc.

So when will the travesty of a mockery of a sham finally come to an end?

Probably around 2022-25, with a few global crises and “saves” along the way to break up the monotony of devolution. The foundation of this forecast is this chart I prepared back in 2008 (below).

This is of course only a selection of cycles; many more may be active but these four give us a flavor of the confluence of crises ahead.

Cycles are not laws of Nature, of course; they are only records of previous periods of growth/excess/depletion/collapse, not predictions per se. Nonetheless their repetition reflects the systemic dynamic of growth, crisis and collapse, and so the study of cycles is instructive even though we stipulate they are not predictive.

What is predictable is the way systems tend to follow an S-curve of rapid growth with then tops out in excess, stagnates in depletion and then devolves or implodes. We can see all sorts of things topping out and entering depletion/collapse: financialization, the Savior State, Chinese credit expansion, oil production, student loan debt and so on.

Since each mechanism that burns out or implodes tends to be replaced with some other mechanism, this creates the recurring cycle of expansion/excess/depletion/collapse.

I plotted four long-wave cycles in the first chart. I know it may look a bit complicated, but stick with me:

Chart 2

1. The credit expansion/renunciation cycle. a.k.a. the Kondratieff cycle. Credit expands when credit is costly and invested in productive assets. Credit reaches excess when it is cheap and it’s malinvested in speculation and stock buybacks, and as collateral vanishes then credit is renunciated/written off.

This is inexact, but obviously the organic postwar cycle of expansion has been extended by the central bank money-printing/credit orgy.

2. The generational cycle of four generations/80 years described in the seminal book The Fourth Turning.

American history uncannily tracks an 80-year cycle of crises and profound transformation: 1860 (Civil War), 1940 (world war and global Empire) and next up to bat, 2020, the implosion of the debt-based Savior State and the financialized economy.

3. The 100-year cycle of inflation-deflation described in the masterful book The Great Wave: Price Revolutions and the Rhythm of History.

The price of bread remained almost constant in Britain throughout the 19th century. In contrast, the 20th century has been characterized by inflation — the U.S. dollar has lost approximately 96% of its value since the early 20th century.

Another characteristic of this cycle is wage stagnation: people earn less even as costs of essentials rise, a dynamic that inevitably leads to political crisis and upheaval.

The end-game for inflation is destruction of fiat currencies, i.e. rising inflation or complete loss of faith in paper money. This is of course “impossible,” just like World War I, the Titanic sinking, the global meltdown of 2008, etc.

Impossible things happen with alarming regularity.

4. Peak oil, which does not mean the world runs out of oil, it simply means oil production no longer rises to meet demand and eventually declines even as new fields are brought online. It can also mean that the price of energy rises to the point that consumers can either buy energy or they can keep the consumer economy afloat, but they are no longer able to do both.

Many observers are confident that fracking and other technologies will enable current energy profligacy to continue unabated as the U.S. production of oil and natural gas soars.

All this surplus energy in North America sounds wonderful, but that doesn’t mean the world as a whole has escaped Peak Oil.

Even if fracked wells didn’t deplete in a year or two (they do), that expansion of production will not replace the loss of production as supergiant fields in Mexico, the North Sea and the Mideast enter the depletion phase.

Yes, technology can extract more oil, but technology is costly. The days of cheap natural gas may have arrived, but the days of cheap oil are numbered.

How all this plays out is unknown, but even raising U.S. production might not be enough to maintain current production levels. Since several billion more people desire the U.S.-type lifestyle of energy profligacy, then what are the consequences of the mismatch between global demand and supply?

We can also posit that “good-paying jobs” in developed economies are also tracking an S-curve. The post-industrial decline in labor has many causes. But the Internet is a key factor going forward as the Web, AI, Big Data and mobile telephony leverage all sorts of productivity gains without the pesky overhead, costs and trouble of employees.

This reality was masked by the initial boom in Web infrastructure that topped out in 2000, and again by the credit-fueled global malinvestment in real estate that topped out in 2007 and soon by the topping out of the social media/mobile app tech boom, the third stock market bubble and Housing Bubble #2.

Once these bubbles have popped, the reality of long-term employment stagnation can no longer be masked.

Credit bubbles are not engines of sustainable employment, they are only engines of malinvestment and wealth destruction on a grand scale.

A number of other questions arise as we ponder these dynamics. How “cheap” will all that energy be to those without full-time jobs?

How will 100 million workers support 100 million retirees, welfare recipients and parasitic Elites, plus Universal Basic Income as costs rise, taxes soar and wages stagnate?

The Status Quo is unsustainable on a number of fundamental fronts. How long it can maintain the facade of stability and sustainability is unknown.

But the global willingness to squander …read more

From:: Daily Reckoning