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Robert Kiyosaki "The worst is yet to come."

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August 29, 2009 – Comments (8)

A good find at Nathan's Economic Edge

http://economicedge.blogspot.com/2009/08/robert-kiyosaki-preparing-for-worst.html

MY COMMENT:  I do not think much of Kiyosaki, the author of Rich Dad, Poor Dad.  He has been taken to the "woodshed" a couple times in the blogsphere. John Reed said it best here:

http://www.johntreed.com/Kiyosaki.html

Rich Dad, Poor Dad is one of the dumbest financial advice books I have ever read. It contains many factual errors and numerous extremely unlikely accounts of events that supposedly occurred.

Kiyosaki is a salesman and a motivational speaker. He has no financial expertise and won’t disclose his supposed real estate or other investment success.

Rich Dad, Poor Dad contains much wrong advice, much bad advice, some dangerous advice, and virtually no good advice.

I think Kiyosaki might have it right here:

Preparing for the Worst

by Robert Kiyosaki

Monday, August 24, 2009

"Is the crisis over?" is a question I am often asked. "Is the economy coming back?"

My reply is, "I don't think so. I would prepare for the worst."

Like most people, I wish for a better future for all of us. Life is better when people are working, happy, and spending money. The stock market has been going up since March 9, 2009. Talk of "green shoots" fill the air. Yet, in spite of the more positive news, I continue to recommend that people prepare for the worst.

The following are some of my reasons:

1. I believe the stock market is being manipulated. I suspect the government, banks, and Wall Street are doing everything they can to keep the market from crashing. Our leaders know that nothing makes the world feel better than a raging bull market. Do I have any proof that the market is being manipulated? No. I just smell a rat, or a pack of rats. I believe greed, self-interest, arrogance, and fear control the financial markets. I suspect those in charge will do anything to keep us all from panicking... and I don't blame them. A global panic would be ugly and dangerous.

2. In my view, this global crisis has been caused by the Federal Reserve Bank, the U.S. Treasury, Wall Street, and the central banks of the world. They caused the problem, profited excessively in doing so, and now profit by being asked to fix the problem. Every time I hear a politician mention the word stimulus, my mind flashes back to high school biology class, when I touched battery wires to a dead frog to make it twitch. Today, you and I are the dead frogs. Pretty soon the dead frog will be fried frog. In the 1980s, our government's hot money stimulus was measured only in the millions of dollars. By the 1990s, the government had to ramp the stimulus voltage into the billions in order to get the frog to twitch. Today the frog has jumper cables with trillions in high-voltage hot money pouring through the lines. While most us feel better when we have more high-voltage money in our hands, none of us feel good about higher taxes, increasing national debt, and rising inflation for the long term. Another old saying goes, "Sometimes the cure is worse than the disease." I say the government stimulus cure is killing us frogs.

3. Old frogs don't hop. Another reason I am cautious about the future is that the Western world has a growing number of old frogs. Between 1970 and 2000, the economy responded to bailouts and stimulus packages because the baby boomers of the world were entering their greatest earning years -- their purchasing power increased, and demand for homes, cars, refrigerators, computers, and TVs boosted the economy. The stimulus plans seemed to work. But when a person turns 60, their spending habits change dramatically. They stop consuming and start conserving like a bear preparing for winter. The economy of the Western world is heading into winter. Hot wires and hot money will not get old frogs to hop. Old frogs will simply join the bears and stick that money in the bank as they prepare for the long, hard winter known as old age. The businesses that will do well in a winter economy are drug companies, hospitals, wheelchair manufacturers, and mortuaries.

4. The dying frog economy will lead us to the biggest Ponzi schemes of all: Social Security and Medicare. If we think this subprime financial crisis is big, it's my opinion that this crisis will be dwarfed by the crisis brewing in Social Security and Medicare... Medicare being the biggest crisis of all. As old frogs head for the big lily pad in the sky, they will demand young frogs spend even more in tax dollars just to keep old frogs from croaking.

5. The 401(k)Ponzi scheme. A Ponzi scheme, like the scheme Madoff ran, depends upon young money to pay off old money. In other words, a Ponzi scheme needs tadpoles to finance old frogs. The same is true for the 401(k) and other retirement plans to work. If young money does not come into the stock market, the old money cannot retire. One reason so many people my age are worried, not only about Social Security and Medicare, is because they're concerned about getting their money out of the stock market before the other old frogs decide to drain the swamp.

The facts are that the 401(k) plan has a trigger that requires old frogs to begin withdrawing their money at a certain age. In other words, as baby boomers grow older, more and more will be required, by law, to begin withdrawing their money from the market. You do not have to be a rocket scientist to know that it is hard for a market to keep going up when more and more people are getting out. The reason the 401(k) has this law related to mandatory withdrawals is because the Federal government wants to collect the taxes that they deferred when the worker's money went into the plan.

In other words, the taxman wants their pound of flesh. Since they allowed the worker to invest without paying taxes, the government wants their tax dollars when the employee retires. That is why the laws require older workers to sell their shares -- and pay their pound of flesh. Demographics show that we are entering a battle between young and old. I call it the "Age War." The young want to hang onto their money to grow their families, businesses, and wealth. The old want the tax and investment dollars of the young to sustain their old age. This war is not coming...it is upon us now. This is one of many reasons why I remain cautious and say, "The worst is yet to come."

Posted byNathan A. Martin at1:27 PM

8 Comments – Post Your Own

#1) On August 29, 2009 at 7:31 AM, outoffocus (23.59) wrote:

This is the 3rd post of Robert Kiyosaki's article. For all the people out there who dont like Kiyosaki, people sure like this article.

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#2) On August 29, 2009 at 12:43 PM, ElCid16 (98.07) wrote:

"In other words, as baby boomers grow older, more and more will be required, by law, to begin withdrawing their money from the market. You do not have to be a rocket scientist to know that it is hard for a market to keep going up when more and more people are getting out."

It seems like Kiyosaki is inferring that a 64 year old's 401K plan is ~100% equities, but when the money is withdrawn from the plan at 65, it will immediately be converted to ~100% cash.  Who's stopping them from moving their money right back into equities, albeit in a taxable account?  Just because people are moving out of a 401K plan doesn't mean that they throw asset allocation out of the window...

"If young money does not come into the stock market..."

Why wouldn't young money come into the stock market?  More and more companies are offering 401K plans including employer matching and/or contributions.  The only way that I envision younger people not entering the stock market is if we continue to shower people with this doom and gloom concept.  Sure we have a potentially new wave of forclosures as ARM rates hit new highs over the next year or two.  Sure we have a troubled medicare program that's going to require a significant increase in taxes.  But as a 26 year old with 30+ years of investing ahead of me, I plan on taking advantage of a down market to the fullest...

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#3) On August 29, 2009 at 1:08 PM, russiangambit (29.49) wrote:

Kiyosaki had a book predicting stock market crash in 2008-2010 due to boomers retirement. Not bad, huh?

I think his ideas are not his own, he just packages them, this is why he is never consistent . He is always doing whatever sells.

I don't think Rich dad is such a bad book. It is very useful for those financially illiterate, which is the majority of the population. He, of course, promotes real estate investing, but that was 20 years ago and it was OK 20 years ago.

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#4) On August 29, 2009 at 1:42 PM, peterrogers1 (< 20) wrote:

For those who cannot analyze the valuable points Mr. Kiyoski explained in his book (Rich Dad Poor Dad), then they have a serious problem. This book was written for people who are either poor or in the middleclass and want some basics on how to climb-up the ladder of success. This is not written for someone already rich.

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#5) On August 29, 2009 at 1:45 PM, Tastylunch (29.54) wrote:

russiangambit

That could explain it. I was beginning to wonder if Kiyosaki had multiple personality disorder.

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#6) On August 29, 2009 at 2:35 PM, ozzfan1317 (81.83) wrote:

I am working on a similar book hopefully with more information and less brain washing..lol

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#7) On August 29, 2009 at 5:07 PM, truthisntstupid (94.09) wrote:

So...is a house indeed an asset, then, since he's so wrong?  Or did many, many folks wish they too had considered it as a liability as he tries to tell them in in his book?  That one lesson alone if heeded would have prevented the financial devastation of millions.  It was mainly a motivational book, seeking to inspire readers to learn more and take control of their destiny. 

Anyway, I cheerfully hope he is correct about the 401(k) thing.  As a dividend investor, I prefer to buy income cheap.  To all you preferring to play the game the other way (capital appreciation)  trying to "buy low and sell high,"   uh...good luck.  I root for low prices and stable or growing dividends in utilites and what I believe to be solid companies.  And yields and stock prices vary inversely so your bad luck is good for me.

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#8) On August 29, 2009 at 9:20 PM, russiangambit (29.49) wrote:

> So...is a house indeed an asset, then, since he's so wrong?  Or did many, many folks wish they too had considered it as a liability as he tries to tell them in in his book?

Exactly. This is one lesson that makes the book a worthy read. Everybody is so brainwashed that they must own a house and it is somehow an investment because it is going to aprpeciate big time. A house is a money pit - utilities, maintenance, taxes. Don't buy more that you can afford.

 

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