Is the “Melt-up” Back?

By Brian Maher

This post Is the “Melt-up” Back? appeared first on Daily Reckoning.

Nothing remains of February’s correction but a quaint memory.

The stars are back in their courses… the angels are back on duty… and the Perfections are back within sight.

Both the S&P and Nasdaq have returned to record highs, while the Dow Jones is within an ace of its own.

More good cheer came by way of the Commerce Department yesterday…

Its bean counters inform us that second-quarter growth exceeded its own original 4.1% reading.

The adjusted figure is 4.2% — the highest reading in nearly four years.

Many analysts had expected a downward revision.

Greg “Gunner” Guenthner of our trading desk gauges the bubbly mood on Wall Street:

“It’s official: A sleepy summer rally has turned into a raging bull as the winter correction fades from the herd’s memory.”

Indeed, speculators are once again betting heavily against safe-haven assets.

The money is now “net short” gold for the first time since December 2001 — when gold was a mere $275 per ounce.

Speculators are also massively shorting longer-dated Treasuries like the 10- and 30-year.

The number of short positions is the “highest in history, by far,” says “bond king” Jeffrey Gundlach.

A cold sweat suddenly washes over us…

As we have noted before, bad news frightens us — but good news terrifies us.

Too many passions are unchained, too many guards go down, too many fools rush in.

As Bloomberg’s Michael Regan warns:

The obvious takeaway is that positioning is all on one side of the boat and speculators are woefully unprepared for a major risk-off event, suggesting complacency may be reaching epidemic levels as equities break out to new highs.

Is not the way ahead peppered with potential snares?

Are the trade wars over? Is the fallout from Turkey truly contained? Can you depend upon the Federal Reserve to get things right?

Markets appear to believe so — and more — according to market strategist Richard Suttmeier:

It seems like the stock market is shrugging off several time bombs including the forgotten “Turkey Turmoil,” the $247 trillion total global “debt bubble,” record household debt, near-record margin debt, the risk of tariffs and the trade war, the growing political battleground and continued rate hikes by the Federal Reserve.

Suttmeier mentions margin debt.

Investors are borrowing at record levels to leverage their existing assets into greater gains… informs us that total margin debt has exceeded 3% of GDP on only three occasions:

In 1929… 2017… and today.

Today’s leverage is 55% higher than the peak of the 2007 bubble… and 116% higher than that of the 2000 tech bubble.

We conclude that man’s ability to ignore history approaches infinity, that his capacity for self-delusion knows no bounds.

And the sweeter the plum dangling before him, the dizzier he grows.

The nice thing about this bull market is it has been, as Bloomberg has described, “derided as fake, doomed and history’s most hated.”

It has climbed a wall of worry, brick by anxious brick.

That a Trump election would crash the stock market, for example.

It did not — far from it.

Bad news has therefore been good news.

Bad news has kept fear in its saddle… euphoria in its cage… and the bull in stride.

Even if markets pulled back on occasion, as this winter, pullbacks have proven healthy.

They’ve shaken out weak hands… and offered additional opportunities to “buy the dip.”

We’ve argued previously that we don’t expect a market collapse until possibly next year or the next.


Because this year’s correction threw cold water on the “melt-up” that was beginning to take form.

Stocks had set record upon record in January.

And money was rushing into equities like fools into love… or drunks into walls.

Then came the correction.

But now stocks have returned to record heights, despite trade wars and other bugbears above noted.

And speculators are currently wagering record amounts against safe haven assets.

So we wonder — are markets on the verge of a melt-up?

To remind, stocks reach fever-heat during the glorious terminal phase of bull markets, before burning up.

Given today’s excesses, we suspect the collapse would be a thing for the ages.

But some of the market’s largest gains occur in the melt-up phase.

In the 18 months prior to October 1929’s infamous “Black Tuesday,” for example, the stock market nearly doubled.

The Nasdaq also spiked 200% in the 18 months before the dot-com fever peaked in March 2000.

A melt-up beginning today would suggest similar or greater gains — before collapsing in late 2019… or early 2020.

Of course, we hazard no formal prediction.

The entire business could collapse tomorrow. Or five years from now.

The answer, as always, is with the gods — and they won’t say.


Brian Maher
Managing editor, The Daily Reckoning

The post Is the “Melt-up” Back? appeared first on Daily Reckoning.

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Rich Dad Scam #3: “If You Work Hard, You’ll Be Rewarded”

By Robert Kiyosaki

This post Rich Dad Scam #3: “If You Work Hard, You’ll Be Rewarded” appeared first on Daily Reckoning.

The words “scam” and “con” are synonymous.

Con is short for confidence. A con man can only dupe you if you put your confidence in him.

When I talk about Rich Dad Scams, the scams designed by the rich to keep you poor, one of the hardest things to get past is that so many of us have been taught to believe with conviction and confidence that these scams are true.

Plus, the conning started so young that we never had a chance to think differently.

That’s the difference between thinking like my poor dad, who did what he was told and died poor, and thinking like my rich dad, who was financially educated and grew rich based on his understanding of these cons.

This post is about one of the biggest, most-ingrained Rich Dad Scams: If you work hard, you will be rewarded.

Don’t Work Hard

My poor dad worked hard all his life. He went to school because he was told to. He got a job because he was taught that was what you have to do.

He worked hard because that was what he was supposed to do. Yet, he struggled financially his whole life, and it often made him unhappy.

When talking about working hard, my rich dad liked to use a story from Mark Twain’s The Adventures of Tom Sawyer as an example.

Tom runs a con job on the kids in his neighborhood. His job is to paint a fence, and he makes it look like so much fun that all the other kids offer to pay him to do the work.

Rich dad said, “Rather than work hard, I work smart. Smart work is getting others to not only do but also want to do hard work for you. And smart work is also getting money to work for you, not the other way around.”

Why Hard Work Doesn’t Work

It seems like a simple math equation: effort=reward.

You work hard, you earn more, you get more for your effort, and it seems like it should work. Once upon a time, it may have worked that way.

But now, there are two problems.

One—as I wrote about yesterday in Rich Dad Scam #2, “You Need a Job”—if you’re an employee, working harder may get you more money but it also means you’ll be taxed more. So working harder can actually result in your being punished financially. That’s why we created the Rich Dad Scams series, so that you can see these “truisms” for the manipulative lies they are.

The second problem is that you’re working hard for something in particular: Money. And that money is worth less and less every day.

Throughout the 21st century, average income after inflation has fallen. And continues to fall.

If you’ve been working hard at your job for ten years, the money you’re making now is actually worth less than it was when you earned it.

Practically speaking, that probably means you’re either making the same amount now as a few years ago, or maybe even making less!

Rather than work hard for money, you should be working smart by having money work hard for you.

That’s what the rich do.

Working Differently

There are two kinds of “work.” The first type is work you don’t want to do.

You only do this work because you know that if you don’t, something bad will happen. Examples of this type of work include:

  • You go to work every day because if you don’t then you’ll lose your job and have no money for the necessities of life.
  • You do the laundry because if you don’t you’ll have no clean clothes to wear and people will think you’re uncivilized.
  • You eat food you don’t like because if you don’t your health – and your waistline – will suffer.

I could go on and on with examples, but you get the idea. I’m sure you could list quite a few yourself. We all have at least some of this kind of work in our lives – yes, even when we become financially free.

The second type of work is work you do want to do. You do this kind of work because it is meaningful, fulfilling, interesting, etc. Work we enjoy gives us a sense of purpose, challenges us, and taps into our passion. Here are some examples of work my wife Kim loves doing:

  • Volunteering your time with a charity that you are passionate about.
  • Spending hours on the weekends practicing your hobby.
  • Volunteering your services as the family travel agent in order to make a special family reunion possible.

If you were to group all the work you do into one category or the other, which list would be longer?

Chances are, if you spend most of your time doing work you don’t want to do, you feel trapped, resentful, and unhappy. If you spend a lot of your time doing work you do want to do, you likely feel energetic, fulfilled, and happy.

The goal of becoming financially independent is not to stop working, but to shift our efforts from work we don’t like to work we do like.

Every week, most people just hold on until Friday because they hate their job. And when Sunday rolls around, they’re miserable because they know they have five days of work to look forward to.

We all know this. Probably most of you reading feel this.

It’s a lousy way to live, but it’s not the only way!

We’ve just been conditioned to think it’s the only way.

I love my work, but I’m also never far from it.

Like most entrepreneurs, I’m at it almost 24/7, but it doesn’t make me miserable—and it certainly doesn’t feel like work.

It’s more like a game I love playing.

It’s challenging. It’s fun. It’s rewarding.

If that sounds attractive to you, the first step to get there is recognizing “work hard” for the Rich Dad Scam that it is.

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2X Your Money With Today’s #1 Cord-Cutting Myth

By Jody Chudley

cord-cutters sink charter's stock

This post 2X Your Money With Today’s #1 Cord-Cutting Myth appeared first on Daily Reckoning.

Households across the United States are increasingly saying goodbye to satellite and cable subscriptions in favor of cheaper online streaming methods.

Today, I’m going to tell you how to profit from this trend and possibly double your investment in just three years!

Surprisingly, what will really knock your socks off is the specific business that I’m going to recommend.

Because it’s not Netflix. It isn’t the parent company of Hulu or Sling TV.

Believe it or not… It’s a cable company.

Americans Are Cutting The Cord In Droves

The rate at which people are cutting the cable cord is accelerating. In fact, it has tripled in the past five years as viewers instead opt for the wide world of streaming entertainment available from providers like Amazon, Netflix, Hulu, YouTube, Sling TV and others.1

The market reaction to this trend of cord-cutting has been seemingly quite sensible. Investors have thrown a wet blanket on the share prices of the media companies that provide cable and satellite content.

But seemingly sensible and actually sensible are two very different things.

I believe that the market’s pessimism towards at least one cable company is creating an excellent opportunity for thoughtful investors. Yes, I’m saying that the market is wrong.

Cutting The Cord But Not Cutting Into Profits

What the market has missed in punishing cable providers is that a customer who cuts the cord on cable isn’t the same as a customer who is ending their relationship with the cable provider altogether.

The reason is that the cable provider is most often the same company that is supplying them with broadband service.

Further, once that customer who has cut the cord moves exclusively to streaming entertainment, what usually happens is that they decide to get a faster connection. The customer does that so that they can stream video across multiple devices and actually enjoy it without lags.

That faster broadband connection is more expensive — which means more revenue for the broadband provider.

If you have ever tried to watch a streaming video that is constantly pausing, you know that not upgrading to a faster connection is not an option. The repeated starts and stops of watching a constantly pausing/freezing video is torture!

So not only does the cable company generally retain the cord-cutting customer as a broadband customer, the company does so while selling the customer a much higher margin product.

The margins on cable are thin. The cable company has to pay for the content being provided which in recent years has become incredibly expensive. Have you ever checked out the deals that some television and movie stars are getting?

Meanwhile, the margins for selling broadband space are fat. Very fat.

Charter Communications (CHTR) is the second largest cable company in the United States. Charter supplies television, telephone and internet services to 27 million customers through its huge cable infrastructure.

Over the past year, the cord-cutting threat has depressed Charter’s share price. You can see what has happened in the chart below.

Yet, customers discontinuing cable subscriptions with Charter and instead buying more broadband service is not a bad thing. Charter’s profit margins on cable are well below 30 percent while its broadband margins are in excess of 50 percent.

Those wider margins mean that each dollar of broadband revenue creates as much income as two dollars of cable revenue.

Charter’s shares are currently undervalued and the company itself is taking advantage. Over the past year, the company has repurchased a whopping $13 billion of its own shares. That has resulted in a 12 percent reduction of the outstanding share count.

As the share count comes down, remaining shareholders are entitled to a bigger, more value piece of the pie.

I just finished reading an excellent Q2 investment commentary from Avenir Capital.2 In it, the value investing shop noted that continued share repurchases could drive 20 percent annualized free cash flow growth for Charter over the next several years.

If you assume that the Charter continues to trade at the current valuation of just 5 percent of free cash flow, those share repurchases alone would result in a share price of nearly $600 three years from now.

That would be a double from where we are today, which over three years equates to an annualized return of 25 percent. Sign me up!

Here’s to looking through the windshield,

Jody Chudley

Jody Chudley
Financial Analyst, The Daily Edge

1The number of cord-cutters has tripled in the last 5 years, and it’s starting to hurt the TV channels, BGR
2Charter Communications Could Pop By 100%, Avenir Capital

The post 2X Your Money With Today’s #1 Cord-Cutting Myth appeared first on Daily Reckoning.

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REVEALED: The True Impact of “Unconventional Monetary Policy”

By Brian Maher


This post REVEALED: The True Impact of “Unconventional Monetary Policy” appeared first on Daily Reckoning.

What has been the specific economic impact of post-2008 “unconventional monetary policy”?

Has it helped? Has it hurt?

Neither? Both?

Today the official scorecard is in… which we reveal shortly.

First we glance at a different type of scorecard — the stock market.

Today, for the fourth straight session, both the S&P and Nasdaq set fresh records.

The Dow Jones also ended the day higher.

Though still 2% off its January top… it has officially emerged from correction territory after more than six months in the wilderness.

Bears really have to whistle hard to keep their courage up these days.

Trade wars… Turkey… skyshooting debt levels — nothing seems to matter now.

We assume the gods are plotting… and biding their time.

But to the topic under discussion…

Deutsche Bank has just released what it terms “a report card for unconventional monetary policy.”

“Unconventional monetary policy” of course refers to quantitative easing, zero interest rates, negative interest rates and the rest of the tools in the central banker’s deepening kit.

Deutsche Bank examined their impact on several metrics of economic performance around the world.

The telling results, as summarized by analyst Daniel Lacalle:

1. In eight of the 12 cases analyzed, the impact on the economy was negative

2. In three cases, it was completely neutral

3. It only worked in the case of the so-called QE1 in the U.S. and fundamentally because the starting base was very low and the U.S. became a major oil and gas producer.

For emphasis:

In 11 of 12 instances… “unconventional monetary policy” proved either negative or insignificant.

Torsten Slok, chief international economist at Deutsche Bank:

How do you evaluate if QE and negative interest rates are working?… The issue is if QE and negative rates have been supporting the economy…

The conclusion is that U.S. QE1 had an impact but in all other cases the impact of QE and negative interest rates has been insignificant. And in eight out of 12 cases, the economic impact has been negative.

We enter the following graphic into the record as evidence of central bank futility:

Where have all the benefits of unconventional monetary policy accrued?

In the stock market, of course.

Cheap debt and ultra-low interest rates have driven the herd into stocks.

And corporations, fattened on cheap debt, have purchased their own stocks at a record gallop.

We need only point to today’s record highs as proof thereof.

Meantime, the average American, toiling on Main Street, has been losing his toehold on the economic ladder.

We are told unemployment has been licked.

But former colleague David Stockman informs us that Americans had 73.83 million “breadwinning” jobs in July.

That figure is only one million jobs higher than 18 years ago.

A quaint fact when you consider today’s population is 48 million greater.

Nor is the average worker outpacing inflation.

Wages are rising about 2.8%.

But inflation is on the creep… like a silent thief on tiptoe.

July’s inflation rate registered 2.9%.

Core inflation is nearing its highest levels in six years.

The average worker is thus a hamster set upon his wheel… running in place… or worse.

Does this enhance the long-term safety of the American republic?

Historian Peter Turchin is the author of War and Peace and War: The Rise and Fall of Empires (we tip our hat to Daily Reckoning contributor Charles Hugh Smith for the reference).

At the height of the Roman Republic, Turchin informs us that the wealth of Rome’s top 1% was perhaps 10–20 times a commoner’s.

At the time of Rome’s terminal imperial decline… it may have risen to 10,000 times.

America’s numbers aren’t quite so out of joint — yet.

But nonetheless…

The vast bulk of the “recovery’s” gains have gone to the asset-holding classes, while the great American middle has given ground.

It has only widened the gulf developing since the mid-1980s, when the financialization of the U.S. economy was getting underway:


If trends continue… will the center hold?

Turchin lists three dynamics common of late imperial decline throughout history:

1. Stagnating real wages due to oversupply of labor.

2. Overproduction of parasitic elites.

3. Deterioration of central state finances.

Please ask yourself, dear reader, if any of the preceding apply to today’s United States.

Maybe No. 2 at least… or No. 3?

The national debt stands at $21 trillion.

Trillion-dollar annual budget deficits are now in prospect for years to come.

Something, somewhere, sometime, must give way.

But put away all your concerns… and rejoice on this late summer day — the stock market is at record highs.


Brian Maher
Managing editor, The Daily Reckoning

The post REVEALED: The True Impact of “Unconventional Monetary Policy” appeared first on Daily Reckoning.

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Rich Dad Scam #2: “You Need a Job”

By Robert Kiyosaki

This post Rich Dad Scam #2: “You Need a Job” appeared first on Daily Reckoning.

Let’s get right back into it.

I opened up yesterday’s issue talking about all the scams we see everyday, whether we know it or not.

Some scams really are difficult to spot—even impossible for some people to ever recognize.

From my rich dad, I learned financial smarts, which taught me how to spot scams—and how to not be taken in. Without those financial smarts, it can be very easy to be taken in by scams, especially the scams that the rich use to keep the poor in their place.

To break away from them you usually need someone else to warn you that you’re being duped, to tell you that you’re being taken advantage of, and to tell you what you can do about it.

Yesterday, I told you the higher education system has been scamming you all your life.

Today, you’re going to find out why “Get a Job” is just as big a scam as any.

The Big One: You Need a Job

When I was young, my poor dad always told me that I needed to go to school so that I could get a good job. To my poor dad, getting a good job was the most important thing in life.

My poor dad worked very hard. And he was always worried about money. Yet, he never got ahead. His job was one of the things that actually kept him from succeeding. He toiled away working for others, often getting raises only to keep up with the cost of living and paying a high percentage to the government in taxes.

My rich dad, on the other hand, never had a “real” job, and he was rich and successful.

My rich dad understood that the sentiment, “Get a job,” was a scam.

Rather than get a job, he made jobs. Rather than work for someone else, he worked for himself. Rather than pay high taxes, he used the tax code to get rich.

How the Scam Works

This such a massive scam because the trap it lays out makes you poorer, especially if you have a high paying job, because you pay the most in taxes.

And guess who isn’t paying a lot of taxes? The owner of the business you work for. The scam gets even worse when you look at it long-term. If you do well at your job, if you claw your way up the ladder, what is your reward? A small increase in pay and a bigger increase in taxes.

It gets even worse if you work for yourself. You pay the highest taxes in the form of self-employment taxes.

The only way to avoid this is to be the owner of a big business or to be an investor, to put your money to work for you.

That’s where the rich work and live.

The system is set up to benefit the rich so they can keep their money while making sure YOU keep getting taxed.

The Tax Scam

When you realize that taxes are a way of keeping you in your place, you can see that this Rich Dad Scam is really just an extension of Rich Dad Scam #1, “Go to School.” It’s in school that you learn to be a good employee, that if you work hard you can succeed. But really, you can’t, not on those terms.

The government gives tax breaks to people they identify as job creators: entrepreneurs and big business owners.

They want the private sector to develop real estate, start companies, and generate wealth. The government rewards citizens like that. In return, the government expects employees to pay taxes that cover things like Medicare and Social Security. The government loves low unemployment rates for a whole host of reasons, and “getting the country to work” helps them out a whole lot more than it helps the worker.

Some people argue that employers pay these taxes too, but really what they are doing is using money that would otherwise pay you to pay their share of the taxes.

False Security

The idea that a job is an important part of your personal security is a big part of the scam, too.

The reality is that having a job does not make you secure. Rewind the clock and look at life a decade ago: unemployment hovering around 10%, people getting laid off all over the country, living out what we now call the Great Recession. In an economy where people are losing their jobs, the more secure position is to own, or at least have a stake in, the company that is firing people. And if history tells us anything, we’re always just X number of days away from the next crisis. Everyone can be fired. Except for the people who own the company doing the firing.

Stepping Away

My poor dad, just like most people, was conditioned and taught from the day he was born to be an employee.

My rich dad broke away from that thinking and was an entrepreneur. He put his money to work. He was on the side of the rich, the side protected by the government.

But how do you get there?

The first answer is simple. You do it by increasing your financial education and beginning to think like an entrepreneur instead of an employee.

When you do that, you break out of the rat race. You realize that everything you’ve been taught about getting a job and finding success is a lie, that there is another way, and it’s a way that actually works while also giving you a better life.

And that’s the secret the rich don’t want you to know.

The post Rich Dad Scam #2: “You Need a Job” appeared first on Daily Reckoning.

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I Got Robbed Last Week… And You Could Be Getting Robbed Right Now

By Zach Scheidt

Zach Scheidt

This post I Got Robbed Last Week… And You Could Be Getting Robbed Right Now appeared first on Daily Reckoning.

I got robbed last week.

No, it wasn’t a violent crime and I was never in danger.

But they took something that meant a lot to me!

I traveled for work last week and parked my car at the airport. The Saturday before I left, I got a chance to play golf with my brothers and my clubs were still in the car. Unfortunately, when I got back from my trip, the clubs were gone.

Now, in the broad scheme of things, golf clubs aren’t that big of a deal. They can be replaced.

But one club in particular was special. It was a customized putter my little brother gave me for my 40th birthday. I can’t just “buy another one” when it comes to that gift.

The worst part about the whole situation was that I didn’t even know I had been robbed at first!

No Report, No Crime, No Claim…

It wasn’t until the day after I got home that I realized my clubs were missing. I don’t usually leave them in my car, so when my flight landed and I drove home, I wasn’t really expecting to see them in the back.

But the next day, I had a conversation with my brother and suddenly realized that I hadn’t unpacked my clubs!

Of course I hadn’t filed a police report at the airport…

Which meant there was no crime on record. And my insurance company told me it would be really tough to file a claim without one.

Now I’m frustrated…

Something important has been taken from me. I have to tell my brother that I can’t go golfing with him until I replace my clubs. And I feel bad for not taking care of the special gift he gave me.

But as disappointing as my situation is, it’s nothing compared to the frustration that many seniors have when they find out they’ve been robbed out of a stable retirement.

And just like me, most retirees have no idea they’re even missing something! (Not until they run out of income that could have been theirs if it hadn’t been stolen from them.)

That’s why I’ve made it my mission to help you build your wealth strategically, and keep from getting ripped off by the Wall Street swindlers who can take from you without you even knowing.

Two Big Ways Investors Get Robbed

Are you getting robbed by Wall Street?

If so, you probably don’t know it. Because just like the guys who took my golf clubs, the Wall Street thieves don’t leave much of a trail.

Most brokers and financial advisors are ripping Americans off in one of two ways. (And in many cases, both of these two ways!)

The first is by charging outlandish fees — fees that are totally unnecessary and ridiculous compared to the amount of work they’re actually putting in to “help” you.

Financial advisors typically charge you a percentage of the money you trust them to invest. And that percentage rate gets taken out of your account every year — over and over again.

But what are you really paying them to do?

I’ll tell you. You’re not getting personal investment service. That’s for sure! Instead, these “advisors” invest your money according to a “model” that they’ve already come up with.

It’s essentially a “one size fits all” type approach — or maybe they have 2 or 3 sizes — and a computer simply automatically buys the stocks in their model. Your advisor only has to press a button!

And for that lack of service, you could wind up paying an advisor tens of thousands (if not more) over the course of your retirement. That’s nothing short of highway robbery!

Another way that Wall Street steals from you is to put you in funds, annuities or other financial products that really don’t meet your needs. Maybe they’re too conservative, or maybe they’re too risky.

Basically, they don’t help you make the most of your retirement. But they DO help the brokers make the most of your fees as their clients. Some of these products have big EXTRA fees that steal more money that you actually need to retire.

Fight Back By Taking Control

The bad thing about being robbed by Wall Street is that you can’t usually see it happening.

But the good thing is that you can protect yourself!

If you take matters into your own hands, fire the crooks that mismanage your money and invest your own retirement funds. You can do a great job for yourself and you’ll save all of those fees you would be paying your Wall Street crook — er, advisor!

Best of all, I’ll be around to help point out the best market opportunities that I’m seeing. And with corporations growing profits and the market moving to new highs, there are plenty of those opportunities available.

One of the best ways to keep up with those opportunities is to follow me on Twitter. (Just click on that link and then click “follow” on my Twitter page). From there, you’ll be able to see my thoughts on the market, specific areas that I’m watching, and even strategic thoughts on how you can grow your retirement.

I hope I find that putter my brother gave me when the thief lists it on Craigslist. But much more importantly, I hope you get your assets away from traditional Wall Street managers and keep more of what rightfully belongs to you.

Here’s to growing and protecting your wealth!

Zach Scheidt
Editor, The Daily Edge

The post I Got Robbed Last Week… And You Could Be Getting Robbed Right Now appeared first on Daily Reckoning.

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Rich Dad Scam #1: “Higher Education Is Always the Answer”

By Robert Kiyosaki

This post Rich Dad Scam #1: “Higher Education Is Always the Answer” appeared first on Daily Reckoning.

There are all sorts of scam artists in the world. Most of the time we can spot them, like those emails that promise us millions if we’ll just give away our bank account numbers. Sometimes we don’t spot them until it’s too late or they make a mistake (take Bernie Madoff).

But sometimes we don’t know we’re being scammed at all, never finding out because we’ve been conditioned to think from the cradle that something is the best and right advice for living.

Over the next couple of weeks, I’m going to be sending you some special editions of Rich Dad Poor Dad Daily.

I’m going to explore the scams that most people never know about in a series I call “Rich Dad Scams.” The first one we’ll discuss is higher education.

The “School = Success” Scam

When I was young, my poor dad always told me the best path to success was to go to school. He felt that was the best way to get a good job. The problem was that my poor dad was one of the most educated people I knew, but he was always complaining about money and how unhappy he was with his work.

My rich dad, on the other hand, didn’t have a college degree. Yet he was very rich and successful. Rich dad said, “School teaches you to be an employee. If you want to be rich, don’t count on school.”

So, from a very young age, I learned that the promise of higher education for success was one of the biggest scams around.

That’s why higher education is the first of the Rich Dad Scams.

Going to School Doesn’t Make You (Financially) Smart

Because I’m outspoken against the school system, I’m often accused of being anti-education. Nothing could be further from the truth. But “go to college” is one of those things people point at as a way of being successful without ever stopping to think if it’s true.

The Rich Dad Scam that school will make you a success is perpetrated everywhere and all the time.

What will make you successful is not going to school but rather financial education—learning how money works and how to make it work for you—is what will make you successful, and, unfortunately, you can’t get that in school.

When it comes to money, going to school won’t make you smart.

Understanding Value

This doesn’t mean that education isn’t important.

The basic education you get in your K-12 years is important to everything that comes after. And if you want to be a teacher, a lawyer, or a doctor, then obviously you’re going to need to go to college.

But what you won’t learn in school is how money works. Education, particularly in America, doesn’t teach students how to live or be self-sufficient. Instead, it teaches us to be employees instead of our own bosses. It makes us workers instead of innovators.

That’s a big reason why we call school a Rich Dad Scam.

In fact, the rich use school to keep poor people poor.

Different Types of Intelligence

One of the worst things about school is that it recognizes only one type of intelligence—book smarts.

If you aren’t book smart, you are very quickly labeled stupid.

As a K-12 student, I was not book smart. But I wasn’t stupid. I was just interested in different things. And I was bored. For instance, no one could tell me when I’d ever use calculus in my real life! Yet, I was told to comply and learn. I was being trained to be an employee.

My rich dad wasn’t book smart either. Yet, he was very smart.

He had street smarts, which he used to become very rich.

School doesn’t teach you to be street smart. I had to learn that from my rich dad. My poor dad thought school was incredibly important, and he was very book smart.

But what did it get him? He struggled financially most of his life.

That’s another reason why we label higher education a Rich Dad Scam. The so-called experts tell you that you need it. They tell you it’s important. But it doesn’t actually do anything for you except make you a good employee.

“But I Studied Money in College!”

Tom Wheelwright, my Rich Dad Advisor on taxes, went to school to be an accountant and got straight A’s. He will also gladly tell you that he got no practical financial education.

He learned what was needed to do a job but not how to successfully manage his own finances. And he went to school to learn about money!

People often say they learned about money in school. You may learn how to balance a checkbook, but you won’t learn how money really works.

That’s not an accident—it’s a scam.

The rich use school to train us to be good employees. We start out being told what to do, and are rewarded for compliance. It’s very easy to transition from a school to a company: you’re given orders and rewarded for following them in both places. And that leads us to trust and hand things off to the government and the rich bankers who handle our 401(k).

The rich use education to make themselves richer and keep you poor, and when you realize that, it’s not hard to see why it’s one of our Rich Dad Scams.

Think for Yourself

The people who fall for scams are typically those who are conditioned not to think for themselves.

Unfortunately, Rich Dad Scam #1, Higher Education, robs us of the independence to think for ourselves, to think like an entrepreneur, an innovator, and an investor. It instead teaches us to be dependent.

You need to learn to speak the language of money to be successful. That takes financial education, which opens up a whole new world, a world where you can succeed on your own terms.

Our schools don’t teach that language.

They teach you the basics, and then they either teach you a …read more

From:: Daily Reckoning

315% Gains And Counting (Could be 400% By EoY)

By Patrick Stout

Don't be fooled

This post 315% Gains And Counting (Could be 400% By EoY) appeared first on Daily Reckoning.

Since 2009, the bull market has turned every $10,000 invested in the S&P 500 into $41,500.

That’s a 315% return in just over nine years, all by investing in the broader market.

Unfortunately, many people have missed out on these historic gains.

Maybe you’re one of them…

These people include the retail investors who have kept money on the sidelines in anticipation of putting that money to work during a downturn, and the “permabears” who are consistently bearish and never miss an opportunity to point out the flaws in today’s stock market.

“This bull market is just days away from being the longest running in history!”

“The Fed is artificially propping up stock prices!”

“The yield curve is flattening, and it’s got a perfect record at predicting recessions!”

I’ve heard them all.

Unfortunately for both, they’ve both missed out on historic gains that could’ve quadrupled the size of their retirement account.

But today, I’m making a point to explain why this bull market still has legs. To do so, I want to talk about three of the most important factors when determining a market’s direction, and explain why all three point to profitable times ahead…

Three Pillars Of A Bull Market

Let me introduce you to the three pillars of a bull market. These are three fundamental factors that have historically been useful in predicting the future of the stock market. The three pillars are profits, interest rates, and the dollar.

Let’s break them down…

Pillar #1: Profits — We’ve hammered this point home countless times here at The Daily Edge. Over the long-term, profits are the most important factor in determining stock prices.

Higher profits lead to higher stock prices.

And this earnings season has certainly validated today’s higher stock prices.

Of the S&P 500 companies that reported earnings over the last several weeks, 66% of them reported a positive EPS surprise and 67% reported a positive sales surprise.

In addition, many firms are actually UPPING their full-year guidance going forward. This is incredible for an economic expansion heading into its tenth year!

Pillar #2: Interest Rates — Rising interest rates are what caused the initial volatility shock back in early February.

Higher than expected wage growth in the January jobs report scared investors into hedging against the Fed possibly raising interest rates faster than originally anticipated.

But there’s just one problem…

Interest rates are still hovering around historic lows!

Do you really think businesses are going to slow investment because interest rates rose to half of their pre-crisis level? And do you really think investors are now going to sell stocks in favor of a measly 3% return for ten years?

The interest rate argument seems overblown to me.

Pillar #3: The Dollar — Unfortunately, a rising dollar has been collateral damage in the trade war with China, Europe and now Turkey.

With the U.S. being the strongest economic power embroiled in the trade war, many investors see it as a safe haven of sorts, which has boosted the Dollar Index to a one year high.

This is bearish for U.S. businesses as U.S. goods are now more expensive to foreign buyers.

But as my fellow Daily Edge contributor Alan Knuckman has previously explained, neither the stock market, the gold market, nor the VIX seem to be buying the trade war worries. Which for him points to the dollar quickly resuming its slide once the conflict inevitably ends.

“When the trade war fighting stops, the dollar — which had been in a solid downtrend before the trade talks — will resume its dive.”

That makes all three pillars point to a continuation of the bull market.

So, whether you’re a permabear just waiting to be right or a retiree waiting for a downturn, just know that it’s not too late to make money in this market.

Here’s to a stable retirement,

Patrick Stout

Patrick Stout
Managing Editor, The Daily Edge

The post 315% Gains And Counting (Could be 400% By EoY) appeared first on Daily Reckoning.

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From:: Daily Reckoning

The World Is Ganging up Against the Dollar

By James Rickards

This post The World Is Ganging up Against the Dollar appeared first on Daily Reckoning.

The U.S. has been highly successful at pursuing financial warfare, including sanctions. But for every action, there is an equal and opposite reaction.

As the U.S. wields the dollar weapon more frequently, the rest of the world works harder to shun the dollar completely.

I’ve been warning for years about efforts of nations like Russia and China to escape what they call “dollar hegemony” and create a new financial system that does not depend on the dollar and helps them get out from under dollar-based economic sanctions.

These efforts are only increasing.

In the past four months, Russia has reduced its ownership of U.S. Treasury securities by 84% and has acquired enough gold to surpass China on the list of major holders of gold as official reserves.

Russia has almost 2,000 tonnes of gold, having more than tripled its gold reserves in the past 10 years. This combination of fewer Treasuries and more gold puts Russia on a path to full insulation from U.S. financial sanctions.

Russia can settle its balance of payments obligations with gold shipments or gold sales and avoid U.S. asset freezes by not holding assets the U.S. can reach.

Of course, Russia is not the only country engaged in financial warfare with the United States. China and Iran are leading examples, but we can also add Turkey to the list after its latest currency crisis.

Russia is providing these and other nations a model to achieve similar distance from U.S. efforts to use the dollar to enforce its foreign policy priorities.

Take China and Iran. China is the second-largest economy in the world and the fastest-growing major emerging market. China has a voracious appetite for energy but has little oil of its own. Iran is a major oil producer, and China is Iran’s biggest customer.

But oil is priced in dollars and dollars flow through the U.S. banking system. Trump’s Iran sanctions make it impossible for China to pay Iran in dollars. If U.S. sanctions prohibit dollar payments for Iranian oil, then Iran and China may have no choice but to transact in yuan (see below for the implications).

Meanwhile, Europe has remained a faithful partner to the U.S. and has gone along with sanctions against Iran, for example.

That’s because European companies and countries that violate U.S. sanctions can be punished with denied access to U.S. dollar payment channels.

But now, Europe is also showing signs it wants to escape dollar hegemony. German Foreign Minister Heiko Maas recently called for a new EU-based payments system independent of the U.S. and SWIFT (Society for Worldwide Interbank Financial Telecommunication) that would not involve dollar payments.

SWIFT in the nerve center of the global financial network. All major banks transfer all major currencies using the SWIFT message system. Cutting a nation off from SWIFT is like taking away its oxygen.

The U.S. had previously banned Iran from the dollar payments system (FedWire), which it controls, but Iran turned to SWIFT to transfer euros and yen in order to maintain its receipt of hard currency for oil exports.

In 2013, the U.S. successfully kicked Iran out of SWIFT. This was a crushing blow to Iran because it could not receive payment in hard currencies for its oil.

This pushed Iran to the bargaining table, which resulted in the Iran nuclear deal with the U.S. and its allies in 2015. Now Trump has negated that U.S.-Iran deal and is putting pressure on its allies to once again refuse to do business with Iran.

And Congress is again pushing to exclude Iran from SWIFT as part of a sanctions program.

The difficulty this time is that our European allies are not on board and are seeking ways to keep the nuclear deal alive and work around U.S. sanctions.

Europe’s solution is to therefore create new nondollar payment channels.

In the short run, the U.S. is likely to enforce its sanctions rigorously. European businesses will probably go along with the U.S. because they don’t want to lose business in the U.S. itself or be banned from the U.S. dollar payments system.

But in the longer run, this is just one more development pushing the world at large away from dollars and toward alternatives of all kinds, including new payment systems and cryptocurrencies.

It’s also one more sign that dollar dominance in global finance may end sooner than most expect. We are getting dangerously close to that point right now.


Jim Rickards
for The Daily Reckoning

The post The World Is Ganging up Against the Dollar appeared first on Daily Reckoning.

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From:: Daily Reckoning

Global Liquidity Is Drying Up!

By Brian Maher

This post Global Liquidity Is Drying Up! appeared first on Daily Reckoning.

The August sun is bright… America is on vacation… peace is abroad in the land.

A calm has fallen over Wall Street too.

Stocks bob along in light summer trading… like boats lolling in the light Atlantic swells.

One day down, one day up.

So it goes… day upon shortening day.

The S&P managed to ride one wave to a record high this Tuesday, before retreating slightly these past few days.

It rose to another record high today.

But caution flags flutter in the distance…

The American president once again sits at the center of controversy.

His former lawyer has turned his coat against him…

Michael Cohen will testify that Trump had him purchase the silence of two former paramours during his presidential campaign — contrary to the election laws of the United States.

Of course Cohen’s testimony comes in exchange for prosecutorial clemency.

President Trump denies the allegations.

Said he to Fox News:

My first question when I heard about it was, “Did they come out of the campaign?”… They didn’t come out of the campaign, and that’s big.

Trump was asked subsequently if he thought Democrats would impeach him if they win the House this November.

He replied with the monkish lack of self-importance so typical of the fellow:

“If I ever got impeached, I think the market would crash.”

Would it?

We do not pretend to know.

But certain facts we do know…

One, stocks have risen three-fold since his unlikely election two years prior — in defiance of the “experts.”

But we also know that stocks are currently as expensive as ever — or nearly so.

“Sovereign man” and occasional Daily Reckoning contributor Simon Black:

The [S&P’s] current “CAPE ratio” is now the second highest on record. CAPE stands for “cyclically adjusted price/earnings ratio.”

Essentially it refers to how much investors are willing to pay for shares of a company, relative to the company’s long-term average earnings. And right now investors are willing to pay 33 times long-term average earnings for the typical in the S&P.

The median CAPE ratio based on data that go back to the 1800s is about 15.6.

So at 33, investors are literally paying more than TWICE as much for every dollar of a company’s long-term average earnings than they have throughout all of U.S. market history.

Today’s CAPE ratios exceed those prior to the 2008 crisis, says this Simon… even those prior to the Great Depression.

They have been higher on only one previous occasion — immediately preceding the 2000–01 stock market crash.

Meantime, yesterday’s Financial Times bears worrying news:

“Global Liquidity Is Drying Up.”

The Federal Reserve has been tightening the taps, as well you know.

But the Times informs us that foreign central banks are also getting in on the business.

The number of global rate hikes since January “has increased quite a bit,” we are told.

So much so, in fact, that the number of global rate hikes approaches that immediately prior to the 2008 central catastrophe.

“Given this tightening,” the Times continues, “global liquidity has contracted quite substantially.”

Emerging markets are most vulnerable, as Turkey’s present woes attest.

But evidence indicates the global economy is leaking steam… from China, to Europe, to all points of the compass, save the United States.

The World Trade Organization’s primary trade indicator has fallen significantly this year.

And copper — widely considered a leading economic indicator due to its many industrial uses — has slipped over 20% since early June.

Will the receding liquidity tide ultimately take U.S. markets with it?

“The economy, globally, is slowing down from the fringes and going to the core,” warns Hans Redeker, head of foreign exchange strategy at Morgan Stanley.

Continues Redeker:

When you see a risk in emerging markets rolling over, and you have this concentration of liquidity in the U.S., you know that the next market that is going to give in is the equity market of the United States of America.

Peter Boockvar, chief investment officer at Bleakley Advisory Group, agrees:

It’s hard to think that S&P 500 companies are going to be somehow immune to the slowdown we’re clearly seeing in China and the rest of Asia and also throughout Europe and Latin America.

Meantime, the Federal Reserve is on the track for another rate hike next month… and another in December.

Into this mix we must add quantitative tightening.

The Fed’s balance sheet reductions are projected to rise to $50 billion per month beginning in October.

That is, the global liquidity tide is scheduled to recede further still.

Let us also not forget that political chaos may issue from November’s midterm elections.

Enjoy the waning days of summer… but beware the approaching autumn frosts…


Brian Maher
Managing editor, The Daily Reckoning

The post Global Liquidity Is Drying Up! appeared first on Daily Reckoning.

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From:: Daily Reckoning