The sky is falling! The sky is falling! Ok, Chicken Little, that might be a bit dramatic. But Robert and I firmly believe a crash is coming. Why?
Robert Kiyosaki, author of the “Rich Dad” series of books, has for years predicted an epic market crash when baby boomers, forced by law, start drawing from retirement funds in large numbers.
That meltdown was supposed to happen last year.
Kiyosaki says he likes Trump’s efforts toward creating jobs and pushing U.S. companies to invest domestically so far.
But he worries about how much “change” the U.S. and the world can stomach, given the president’s determination to carry through on the range of promises — including some controversial ones regarding national security and immigration — that got him elected.
“He has to do something, and change always causes upset,” said Kiyosaki. “So the ripple effect is what I’m not clear on.”
And no president, he says, will be able to prevent a meltdown he still believes is on course.
“We have structural financial problems that are so big, nothing can stop them,” Kiyosaki said. “The number one fear among my generation is running out of money. It’s fear and emotion that drive markets, not logic.”
Let’s take a gander at recent history: First, there was the 1980’s savings and loan crisis. Then, in 1987, the stock market crashed and the Dow Jones index lost 23% of its value. The next major event was the dotcom bubble and subsequent crash from 1999 to 2000. And the most recent event was the global financial crisis in 2007-08, which was triggered by the subprime mortgage crisis and collapse of the U.S. housing bubble. I’m missing a few smaller ones in between, but those are the true highlights (or lowlights, really).
Essentially, the economic cycle’s longest period of tranquility took place during the 1990s when the economy went an entire decade without a down cycle. That was a rare—and glorious—decade.
As you can see, it’s been nearly 12 years since the last major event—if history repeats itself, we’re due for a crash. And soon.
Let’s examine the evidence: The Dow Jones industrial average is at an all-time high—its highest closing record is 24,792.20, which was just set on December 18, 2018. Bitcoin, the highly volatile cryptocurrency, has created a complete frenzy in recent weeks, with its 1600% increase in value. That being said, it’s literally rising and falling as I write this. In the news, there’s talk of housing bubbles and auto loan bubbles forming left and right.
The importance of preparation for any financial market
Rich dad said, “Bull markets seem to go on forever, which causes people to become sloppy, foolish, and complacent.”
It’s no secret that the stock market is on a record rise…and that many professional stock traders are terrified. When markets rise like meteors, people get stupid. It happened in 2007, it looks like it may very well be happening again.
Why is this a problem?
You may be thinking that this might not be as big a problem as the housing subprime crisis from 2007-2009. After all, aren’t auto loans much smaller in amount that housing loans? Yes, but the problem is not the individual loan amounts. Rather it is the bundling of these loans into debt investment vehicles that large institutional investors put things like pension funds into.
Those loans that Santander only checked 8% of income on, did you catch that they were bundled into $1 billion of bonds?
We may very well be in the state where we transition from market euphoria to financial distress. This is earily familiar to the housing crash, when large institutional investors lost billions upon billions of dollars on supposedly safe bond investments…all because of the laziness—and euphoria—of loan processors who were more concerned with closing a loan than making the right loan.
“What has happened instead of a market crash was the crash in interest rates, which are adversely affecting millions of fixed-income retirees, pension plans, and savers — at the same time incentivizing people like me to become debtors, using debt to acquire income-producing real estate,” he said.
Most retirement plans assume an 8% return, Kiyosaki said, but “when interest rates are a 1% or 0% or negative percent, returns aren’t working.”
At the most recent Fed meeting in early February, the Federal Reserve voted to keep federal funds in a range of 0.5% to 0.75%, though the central bank has signaled that this year it wants to hike interest rates three times this year.
The second crash Kiyosaki said he didn’t see coming was the one that sent oil prices tumbling last year. Kiyosaki said he expected crude US:CLH7 to stay over $100 a barrel, but last year it tumbled below $50.
Oil moved back up above $50 late last year, but has been hovering for weeks between $53 and $55.
Feast or famine?
Perhaps as you’re reading this, your heart just skipped a beat. For some of you it will be in fear. For others it will be with excitement.
Rich dad also said, “It is not possible to predict the markets, but it is important that we be prepared for whichever direction it decides to go.”
During the last subprime crisis, many people panicked. Some folks, tragically, ended their lives because their financial loses were so heavy. The result of this panic was that capital was withdrawn from the markets, and prices on cash-flowing assets tumbled.
Most people simple weren’t ready for such a steep dive in the financial markets. Rather than take what they perceived to be too big of a risk to invest, they rather held onto their money—the equivalent of putting it under a mattress and riding out the financial storm.
At the same time, Rich Dad Advisor Ken McElroy and I were excited. We partnered together to invest in multi-family housing, a.k.a., apartments, and the buying was good. In anticipation of a downturn, Ken and his partners had recently refinanced many of their previous projects, pulling out the equity tax-free while still having the operational income to cover their operational expenses and debt service.
As the market began to crash, the prices on multi-family housing began to drop as well. Prime assets that were not a good value just a year earlier were now looking like bargain bin specials. Ken and his team moved into action, searching and finding the best deals.
Ironically, many investors were not willing to give capital to the investments Ken and his team found. But there were a small number who saw the opportunity in front of them and decided to invest.
Today, all those investors are much richer…and those that skipped those investment opportunities are very regretful.
Back to basics
Ken and his team put into practice the adage, “Buy low and sell high.” Many of Ken’s investors have their money back, still have ownership in the properties and collect money each quarter—now an infinite return.
How did Ken and team pull this off? Like my rich dad encouraged many years ago, they were ready for whatever direction the market went.
This brings to mind a financial principle that sounds simple but takes a lifetime to master: You can make money in both up and down markets. In fact, just a couple years ago, I shared with you a five-point plan to make money in any market. It might be worth revisiting that post, but in short you must:
Know your position
Know how you’ll perform
Slowly pare back your risk
Buy in pars
If you’re one of those reading this with a heart-beat-skip of excitement, you know this is your time. If you’re feeling more panicky, it’s time to change your mindset. This is a time of opportunity. You just have to be prepared.
SubPrime 2.0 isn’t here yet. Maybe it will never be here…or maybe it will come like a thief in the night and catch many investors off-guard.
Regardless, now is the time to begin increasing your financial intelligence so that you can be prepared for whatever direction the markets take. It will be the difference between thriving and just surviving.
The 5 “G” That Hold Value During Recessions
Now, after a lot of prodding, he did tell us there are 5 “G’s” he has learned will always go up in value during a recession. Without further ado, they are:
Ground (real estate)
Robert said he has made a career out of researching different economies and what happens when they collapse. Now, I’m inclined to believe this. I know when I started to accumulate a nice little amount of wealth, I got a lot more interested in researching the global economy. At first, you’re trying to grow wealth. Once you get a little, you get a lot more interested in preserving it. Robert Kiyosaki has an estimated 80,000,000 reasons to be interested in learning about economies, specifically recessions. I can imagine he’s pretty motivated to do so.
Robert went on to explain that when an economy fails, fear takes hold. People start accumulating things they believe will keep them safe. If you happen to own these things, people will pay a lot of money to buy them from you. Robert shared one story of a man he knew who started buying massive amounts of ammunition in 2008 when there was talk of the economy tanking. A few years later, when the country in Africa he lived in fell into economic turmoil, he sold that ammunition for something like an 8,000% mark-up. That’s a pretty penny. This man realized people were terrified and would pay anything to feel safe. Guns obviously make people feels safe in chaotic times, and the theory is they will sell for a premium because of that.
Gasoline falls into this same category. When you aren’t sure if gas stations are going to stay open, everyone wants to stock up on gas. Companies that make gas can do very well.
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People need to start preparing.
If a financial collapse does occur, you are going to want to start prepping so that, should an economic downturn occur, you have enough food saved up while you either grow your own food in the garden to supplement it, or find another source of free food. Chances are you will need food more than water as water will still run, but stores may close down and shelves may empty out quite quickly.
Food Crisis queuing case of a food shortage you should be aware that grocery stores only have about 3 days of food in stock. People will rush and buy as much as they can so probably the food will vanish in less than a day or hours. So if anything was to disrupt the food supply chain for an extended period of time, there would be chaos in most communities. It’s very important to start preparing NOW. There are several ways to start. The choice you make should depend on the event you are preparing for. Of course the best way is to prepare for all scenarios including long periods.
Part of our guide to start prepping involves identifying a but out plan, location, a suitable bug out bag and bug out contents. If a true economic collapse was to occur, there will be a high increase in crime rates, social disorder, looting and likely clashes with law enforcement and military. It is a safe option to consider leaving busy urban areas as these are most likely the areas that will be prone to violence.
America is in trillions of dollars in debt this bubble is gonna collapse and no one understands that.
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