The Eye of the Recession's Storm - Robert Kiyosaki (aka, Rich Dad Poor Dad)

[bluestorm]

The Eye of the Recession's Storm

I know a lot of Somersofters despise Keen, and his D&G. The man is a life-long academic, with no property investment (and now back to renting). My opinion is academics with little experience in the real world (whether that be in business, economy, etc), are of little relevance.

There is probably no way to make property bulls think that Australia may face problems (regardless of what happens in the rest of the world, or when the US goes into a double dip).

But I did come across this interesting piece written by Robert Kiyosaki (Rich Dad, Poor Dad), who's made millions in investments and through his entrepreneurship. What he sees in the US, should be a warning to Australia that we are far from immune to the next world dip.

Thanks to my latest refinances, my wife and I will save over $7,000 a month in monthly mortgage payments -- that’s $84,000 a year savings. And as far as our rental apartments go, refinancing and saving 2 percent per year on over $100,000,000 in debt is substantial. Even better, since so many people are renting, our apartments are operating at near 97 percent occupancy, even when rents increase.

As you probably know, the mortgage mess is only getting worse, not better. Many people aren’t paying their mortgages because they don’t have a job. Yet there are a growing number of people who have jobs but who are also refusing to pay their mortgage.

A medical doctor friend of mine confirmed this growing trend. He said the doctors he works with, doctors who make a lot of money, are buying a lower-priced second home and then defaulting on their primary residence.

Over the years, my advice hasn’t changed.
In 1997, in Rich Dad, Poor Dad, I stated, “Your home is not an asset.” Real estate agents sent me hate mail.
In 2007 the first subprime mortgages began to collapse. In 2011, the second wave is about to hit.
In 2002 in Rich Dad’s Prophecy, I stated, “You may have up to the year 2010 to become prepared.”
In 2006 Donald Trump and I wrote Why We Want You to Be Rich, predicting the decline of the middle class. Today the working middle class is slipping into poverty.

 

[Sunfish]

But I did come across this interesting piece written by Robert Kiyosaki (Rich Dad, Poor Dad), who's made millions in investments and through his entrepreneurship.

Did he make his money (the amount I do not necessarily accept) from his investments or from his entrepreneurship?

 

[alexlee]

You guys are aware that Rich Dad doesn't really exist, right? Kiyosaki presented old ideas in a form that was easy to understand and at a good time, and certainly helped me think about investments differently. He's a salesman, a good one, but he's not much of an investor. Economic predictions from him? No thanks.

 

[on the move]

Yes Kiyosaki needs to change his tones so he can continue to flog his ware, just like MS has to make Windows a bit different each year so people have to keep on buying.

 

[bluestorm]

Did he make his money (the amount I do not necessarily accept) from his investments or from his entrepreneurship?

Probably his entrepreneurship and salesmanship. (books, seminars, etc). (as well as pushing property investing (in Rich Dad Poor Dad)) - too late for those that read the books later. Much of Kiyosaki's wealth appears to have come from savvy real estate investing. No doubt him having some interaction with Trump helped, as Trump is renowned for favoring property investment.

So when someone who turns D&G on the asset class that helped make him rich, I listen more than to Keen. No doubt, he'll pick up more property at cheaper prices.
But I agree than the US is in for a double dip, and problems in 2011/2012. Australia won't come through this one unscathed.

Anyway, he's doing better than you!.

He's a salesman, a good one, but he's not much of an investor

Perhaps you should read up on Kiyosaki. So when a person who pushed property, turns a bit D&G on property, to me it has some weight. More than Keen's, and more than the "experts" on here.

Here's a snippet.
In the late 1980s, my wife, Kim, and I began investing in small, single-family homes. When it was time to move on to bigger properties, we purchased a six-unit apartment building in downtown Portland, Ore.

 

[evand]

mate, you're preaching to the converted. Just about everyone here is familiar with Kiyosaki.

I think the only line with any relevance is this one:


In 2007 the first subprime mortgages began to collapse. In 2011, the second wave is about to hit.

 

[bluestorm]

I think the only line with nay relevance is this one:

In 2007 the first subprime mortgages began to collapse. In 2011, the second wave is about to hit.

Think you mean "With any relevance", not "with nay relevance" (ie, with no relevance).
Yes, the pointers are to a second wave, and the problem will be the world will be in a lesser position to stimulate with even more government spending.

 

[VYBerlinaV8]

So statistically, just how bad is the next wave? I thought the existing ARMs and sub-primes were working their way through the system now, and we had actually hit the peak already.

Given that Australia has fewer sub-primes now than last time, and we're already cooling going into it, will it really be that bad? I know a few property investors, and none of them have plans to immediately dump all their IPs, even if the going gets a bit tough. If anything, they're in a better spot to ride it out than last time, because they've pulled their belt in a bit during the last 3 years.

Personally, I'm not convinced that a large percentage of property investors will simply dump their stock, as has been hinted at in other threads. There'll always be a few, but surely 2007/8 weeded most of them out already.

 

[Sunfish]

So statistically, just how bad is the next wave? I thought the existing ARMs and sub-primes were working their way through the system now, and we had actually hit the peak already.

You are accessing different sources than I. But that is why there is always a market.

 

[VYBerlinaV8]

You are accessing different sources than I. But that is why there is always a market.

My sources on this are suspect, hence asking the question. I could go research it all, but ultimately I'm playing my own game and a drop in the value of my properties is extremely unlikely to trigger a sell action anyway.

 

[coastymike]

The sub-prime mortgage market is a blip compared to the credit default swap market. And this is where I believe, and a few others, the next problem will occur. If the US keeps pumping money into the system then ultimately this is going to cause inflationary pressures and increases in interest rates. Then we have an issue.

Given the tight margins many of these banks run on (particularly the merchant banks) then any default on one of the loans is not only a problem for one bank but possibly for the others because what happened was as follows

Italy company $2B in borrowings
Bank A takes over risk of loan defaulting for $2b. Bank A then sells the same debt to Bank B and Bank B takes over risk of loan defaulting for $2b. Bank A takes a nice fat fee along the way. Bank B then did the same with Bank C and so on.

Now the problem is that this has a cascading effect. If company in Italy defaults then Bank A is left with a $2b loan outstanding. This is what ultimately led to the pumping in of money to the banks because this market is in the trillions not billions. Now is Bank A folds then it flows down to Bank B and then if Bank B folds onto Bank C. The premise was that the loans would not default or if they did Bank A would just pick up the tab. Well the problem is that Bank A and many of the other banks don't have sufficient capital to wear these losses. Particularly when we are talking trillions.

So watch out for credit default swaps. The sub-prime is nothing compared to that market.

 

[bluestorm]

So statistically, just how bad is the next wave? I thought the existing ARMs and sub-primes were working their way through the system now, and we had actually hit the peak already.

The existing ARMs and sub-primes are working their way through the little rise in 2010, helped greatly by the currently lower interest rates, so some resets are to lower amounts. Through 2011/2012 I don't see this (ARMs and Alt-A's peak is around Q4 2011). The large printing of money, and increased cost of funds will see resets at higher levels.
This together with the fact that despite what the "experts" had hoped, the property market shows no signs of recovery, meaning more falls, and more foreclosures.
Nation on edge of double-dip in home prices

And anyone who read previous threads, knows I raised the point of accounting changes in 2009 that allowed US banks to not mark-to-market some assets, but rather mark assets as held to maturity (avoiding large writedowns in 2009/2010). Therefore their books look good on paper, but in reality, without the property market having recovered as they had hoped and counted on, they are holding a whole lot of unrealised losses.

The media says good profits in 2010. I say fudged figures, and problems awaiting in 2011/2012. Europe and the US double dipping, Australia has little hope this time.

Personally, I'm not convinced that a large percentage of property investors will simply dump their stock, as has been hinted at in other threads. There'll always be a few, but surely 2007/8 weeded most of them out already.

A lot of investors won't. Those that are highly negatively geared, and see their investment with negative returns not offset by CG, may be more likely sell.


Disclosure: talk to your financial adviser for advise. This information is for entertainment purposes only.

 

[.toe]

I've read a little more on Kiyosaki so perhaps I can comment.

According to Kiyosaki, he started making his money from businesses but moved those profits into real estate and paper assets. Now holds 80% of his assets in realestate & paper.

He apparently is not D&G on investments and is not selling any real estate but rather buying. He is however D&G on the U.S. economy & the majority of Americans who don't know how to handle their finances. And says the rest of the world will not be unaffected when the people with the money realise the U.S. cannot pay it's debts.

He buys large apartment buildings with partners and renovates them. Paid entirely by debt with what he calls infinite returns. In other words once the deal is complete his deposit is more than returned and he has at least 20% cashflow before expenses. He says he invests for cashflow so that as the economy tanks his real asset -cashflow- will be unaffected, and he can use it to buy more assets. He does want capital gains, and only buys where there are growing jobs, but does not rely on getting CGs to make money, hence cash flow.

He is also big on gold and silver. Says that twice in the past America has had a currency crisis, & people bought gold up until the value of gold held by the treasury was worth the same as U.S. currency in circulation. His comodities advisor has calculated that given the amount of currency created since the GFC that if people were to buy gold upto it's 'gold standard value' today it would hit $15,000 an ounce.

He contributes to the blog from his latest book regularly (have to login, but is free).
Conspiracy Of The Rich - Blog

 

[bluestorm]

He apparently is not D&G on investments and is not selling any real estate but rather buying. He is however D&G on the U.S. economy & the majority of Americans who don't know how to handle their finances. And says the rest of the world will not be unaffected when the people with the money realise the U.S. cannot pay it's debts.

His comodities advisor has calculated that given the amount of currency created since the GFC that if people were to buy gold upto it's 'gold standard value'

That's pretty much what I gather as well. Yes he is D&G on the U.S economy. But the economy and other factors is what led to the house price falls in the US. The media is saying Us is in recovery now. Far from it. And a double dip in the US would this time push Australia into a recession proper.
(hehe, Gold may well hit $US15000, if the US keep printing money like the Zimbabweans). I predict at least QE3 (maybe QE4 next year). All to try and keep the whole thing from collapsing (which it will do regardless).

He did spruik the quick flip property strategy as well, but has also been strong on cashflow, rather than relying on capital gains (probably easier in the US, and the yields are generally higher there than here).

And says the rest of the world will not be unaffected when the people with the money realise the U.S. cannot pay it's debts.

Yep. Who here seriously believes the US will pay back $14T debt now (and estimated $21T by the end of the decade) at any point in time.

 

[ianvestor]

estimated $21T by the end of the decade

You do realise that's only 2 days away, right?

 

[Ausprop]

You do realise that's only 2 days away, right?

wow- never occured to me we were going into a new decade. not much fuss has been made of this. good bye naughties, where are we now, tennies, tenners, tantalising tens? can't til we get to a catchy sounding decade - roll on the roaring twenties!

 

[ianvestor]

not much fuss has been made of this.

Probably because most people celebrate it a bit early... Like 12 months early.

 

[BayView]

The Rich Dad's Prophecy book is the one that intrigues me.

He predicts that there will be another major stockmarket crash around 2012 -15, and fuelled largely due to the babyboomers all retiring and taking their funds out of their 401k (super funds), whic are hinged to the stockmarket.

 

[.toe]

He did spruik the quick flip property strategy as well, but has also been strong on cashflow, rather than relying on capital gains (probably easier in the US, and the yields are generally higher there than here).

Oh yeah he has many strategies that he talks about, gold is obvious pure capital gains etc. But I think it would be hard for him to flip right now. Apart from you need capital gains to flip, also is that he uses the U.S. tax laws 10:31 exchange which says you can sell CGT free so long as you buy another investment property with all the proceeds for more than you sold the old one. So it continuously enchourages upgrades, which is why he's now onto large apartment blocks.

 

[Ausprop]

Probably because most people celebrate it a bit early... Like 12 months early.

ah yes of course, the naughties started for most people when it rolled from 99to00 so 10 years later is 09to10.