2010: The Best of Times or the Worst? – Robert Kiyosaki
“It was the best of times. It was the worst of times.” - Charles Dickens
Is the recession over? Are happy days really here again? Paraphrasing Dickens, my answer is, “For people who are prepared, 2010 will be the best of times. For many, 2010 will be the worst of times.”
The following are a few of my predictions and reasons behind them :
Prediction #1: The real estate market will crash again.
Pictured above is a graph of mortgage resets. In simple terms, a mortgage reset is when a mortgage comes due. In normal times, refinancing was a simple process…but these are not normal times. Some points of interest:
1. In September 2008, the mortgage resets hit $35 billion that month. That was the exact time the financial crisis hit. When people could not afford to refinance and began to default, the stock market and banking industry crashed.
2. The eye of the storm: In the summer of 2009 mortgage resets were low — around $15 billion a month. This is when optimists began to see “green shoots” in the economy. The green shoots were the eye of the storm. In 2010, as I see it, the second half of the financial hurricane hits. By late 2011, the resets climb to nearly $40 billion a month. The storm will not end until 2012.
3. The first half of the storm was primarily due to subprime defaults. The second half of the storm will hit more solid homeowners. The question is, can they weather the storm? Will Mac Mansion foreclosures be next?
4. In America, there are over 40 million people who own more than two homes. Can they afford to carry and refinance two or more mortgages?
5. Since home values have gone down, many homeowners will find they owe more than their home(s) are worth. Will the bank be kind to them?
6. The time for using your home as an ATM is over. This is crushing retailers and retail real estate. Shopping centers are in trouble. Strip malls are empyting as shopkeepers close — permanently. This will lead to the crash of the office, warehouse, and other commercial properties.
My prediction: Obviously these are the best of times if you are a buyer of distressed properties and the worst of times if you are a seller.
Other things I am watching for in 2010:
1. Will China crash? America’s crash has hit China in the gut. The Chinese are laying off millions of workers. Only massive government bailout is keeping the economy afloat. The Chinese boom will eventually go bust…but will it bust in 2010? Only time will tell.
2. When America stopped importing from China, China stopped importing from the rest of the world. This affects Asian countries as well as Australia, Brazil, and other suppliers of raw materials.
3. Fed Chairman Ben Bernanke is replacing toxic debt with new debt. By protecting his friends in the mega-banks, he is turning the U.S. into a zombie nation. The recession is over, but America is entering an era we will be calling The New Depression, a period when the rich become extremely rich but everyone else becomes poorer. Taxes will kill anyone working for a paycheck.
4. The U.S. dollar will grow weaker. If the dollar strengthens, we will have more unemployment because our goods become too expensive and we will export less.
5. The deficit will increase. The bailouts for the rich are killing the economy.
6. Israel may attack Iran. Israel will not tolerate Iran developing nuclear power, even if Iran claims it is for peaceful purposes. If there is an attack, oil prices will go through the roof.
7. Dead cat bounce. The current stock market rally will probably turn into a dead cat bounce. If the Dow drops below 6500, 5,000 may be the next stop.
The Best of Times
I know I sound painfully pessimistic. I know my predictions are bad news for most people. Yet, for others, bad news is good news.
The following are the bright spots for people who are prepared.
Prediction #2: Gold, silver, and oil will continue to be safe investments in 2010.
The following recaps the year-end prices of gold and silver:
YEAR GOLD SILVER
2000 $ 273 $ 4.57
2001 $ 279 $ 4.57
2002 $ 348 $ 4.78
2003 $ 416 $ 5.92
2004 $ 438 $ 6.79
2005 $ 518 $ 8.80
2006 $ 638 $12.78
2007 $ 838 $14.77
2008 $ 882 $11.33
2009 $1100 (approx) $17.50 (approx)
In 2009, the Dow rose approximately 18%. Gold rose approximately 25%. Silver rose approximately 50%.
By the end of 2010, I predict gold will be at $1,775 an ounce, silver at $24 an ounce, and oil at $85 a barrel. If Israel attacks Iran, these predictions will be blown away.
Prediction #3: The next market to crash will be commercial real estate.
Cash flow positive real estate will be even more affordable. 2010 through 2012 will be a real estate buffet for those with cash and access to credit.
My Personal Investments
As I stated in 2002, “You have up to the year 2010 to become prepared.”
The following are things I have done to prepare myself:
1. I started The Rich Dad Company in 1997 because I saw this crisis coming. For the past three years, I have tightened internal controls and prepared for global expansion via a franchise distribution system. The company is debt free with strong income.
2. 2009 was my best real estate year to date. With the Fed handing out large sums of money and pension funds looking for projects to invest in, my real estate holding company has acquired tens of millions of dollars for acquisition of bankrupt properties and development projects. Development projects are affordable again, as labor, material, and land costs are low and the government is generous with 40-year, low interest, non-recourse loans. People still need a roof over their heads.
3. My oil development projects have done well. We drilled three wells and hit oil on two of them. Government tax breaks for oil exploration remain generous, even for dry holes. Even if the economy crashes, we will still burn oil.
4. I took 90% of my money out of the stock market in 2007. If the Fed raises interest rates, the stock market and real estate market will collapse.
5. I loaded up on gold and silver between 1996 and 2004.
6. With the Fed printing trillions of dollars, cash is trash and savers are losers. As soon as I have excess cash I invest in oil, real estate, gold, and silver.
7. In a zero-interest-rate environment, debtors are winners…but only if you have good debt…debt that’s paid by tenants.
In Conclusion
A few years ago, Japan was ‘King of the Financial World.’ Japan’s economy was the world’s second largest economy — till the bubble burst in 1990. Japan’s budget went into deficit in 1993. Since then, the deficit has averaged 5.4 percent of GDP per year. As a result, Japanese government debt is now 200 percentof GDP today. The U.S. is following Japan, and China will follow the U.S.
We will not see much inflation because the Fed is not able to print enough money to replace the losses from the burst of the credit bubble. Also, factories have too much excess capacity due to lack of demand, which means prices for consumer goods will remain low and unemployment will remain high. Instead, we will see inflation in gold, silver, oil, some stocks, some real estate sectors, and food — not because values are going up but because the dollar is going down.
Welcome to The New Depression. And may these times be the best of times for you.
Source: Yahoo Finance
Disclaimer: Please be informed that the above mentioned stocks/indexes/investment instruments are solely for the purpose of education; it is NOT a recommendation or an invitation to trade/invest. For trading/investment advice, please speak to your remisier, dealer representative or financial adviser. Please understand that there is risk in every trade/investment venture, know your risk first before you venture into any of them.
Global Market Outlook for Week Beginning 21st September 2009
Straits Times Index(STI) is currently facing a strong resistance at the 2700 level. If this ceiling can be broken, 2746 will be the next stubborn resistance. If 2746 can be penetrated successfully, STI may have a chance to hit 3000 before 2009 closes. I do not foresee STI can rise beyond 3000 level by the end of 2009 because the still sluggish real economy simply DOES NOT allow this scenario to play out. In fact, for STI to rally 86% since the March low of 1455, it has already run up too much and too fast ahead of the real economy.
3000 proves to be a very tough resistance level for Shanghai Stock Exchange(SSE) to crack. It may hover between the 2600 and 3000 consolidation range for some time before it resumes its uptrend to retest the early August high of 3748. The recent 23% correction for SSE is actually a good healthy correction, but it DOES NOT signal a reversal in the long term uptrend for the China stock market.
Since early March till now, HangSeng Index(HSI) has rebounded 93% and it has just broken its early August high of 21200. With this strong momentum, HSI should have a high chance to head further north towards the next 23300 and 26300 resistance levels before 2010 comes.
S&P 500 has just penetrated the 1060 barrier and the momentum should see it climbing higher towards the next resistance level of 1168. From the low of 666 in early March, it has only rallied 61% as compared to the impressive rally of 109% for SSE, 93% for HSI and 86% for STI.
NASDAQ is now approaching a strong ceiling at 2167. Since early March, it has staged a gain of 69% from its low of 1265, beating Dow Jones and S&P 500 in term of % increase.
Dow Jones is now moving feebly towards the critical 10,000 level. This will prove to be a very very DIFFICULT level for it to break. It has only rallied 52% from its low of 6469 and is the laggard among the 3 major US indexes.
As we can observe, the Asian markets have outperformed the US market since the start of the market rebound. I believe Asia, especially China and India, and emerging markets will lead the world’s recovery from the financial crisis, instead of the usual US and Europe. Just to quote what billionaire investor and commodity guru, Mr Jim Rogers, had mentioned: “19th century belonged to UK, 20th century belonged to US, 21st century belongs to Asia, especially China”. With US dollar weakening as each day goes by and possibly high inflation coming up, I will prefer to invest my money in Asia and commodities, eg. gold, silver, oil, precious metal, agricultural product…etc, rather than in US and Europe.
Disclaimer: Please be informed that the above mentioned stocks/indexes/investment instruments are solely for the purpose of education; it is NOT a recommendation or an invitation to trade/invest. For trading/investment advice, please speak to your remisier, dealer representative or financial adviser. Please understand that there is risk in every trade/investment venture, know your risk first before you venture into any of them.
10 Eventful Days in 2008
WHAT A YEAR FOR 2008!! In my 10 years of investing experience, I have never seen anything of this magnitude and severeness 
12 months of chaos and never-ending crises that destroyed wealth and shook the business and financial sector unlike anything since the Great Depression of the 1930’s. Let’s do a recap before 2008 draws to an end and a brand new year begins in 2009:
(1) 2 Jan – Asian market meltdown
ASIAN stock markets were battered, with STI plunging 187.1 points, or 6%, its worst one-day fall since October 1987. Similar carnage struck the region with HK’s Hang Seng Index suffering its biggest fall since the Sept 11, 2001 terrorist attacks. Traders blamed it on hedge funds trimming their positions across the region and intensifying fears of a US economic recession. 1 day later, the US Federal Reserve slashed interest rates to try to stop the global rout. It worked, as Asia’s stocks rallied sharply in reaction, with the Hang Seng Index soaring 10.7% in its biggest 1-day point gain ever. The turbulence was so great that equity experts dubbed that week as the ‘5 days that shook the market’.
(2) 16 March – Bear Stearns bailout
WALL Street and the rest of the world felt the year’s first major financial tremor when Bear Stearns, the fifth-largest investment bank, faced near-collapse. Bear Stearns had invested heavily in US sub-prime mortgage instruments and other securities, which had fallen sharply in value. It survived – sort of – when the US Federal Reserve stepped in to facilitate a fire sale to JP Morgan. The crisis also sparked fears and rumours that Lehman Brothers might also be in financial trouble and sent stock markets down sharply. In late May, Bear Stearns vanished into Wall Street history when its shareholders approved its sale to JP Morgan at US$10 a share. 1 year earlier it was trading as high as US$170 a share.
(3) 3 July – oil hits almost US$150
THE price of black gold soared to a record US$147 a barrel that day, fuelled by a larger-than-expected fall in US stockpiles and the threat of conflict with Iran. The slumping US dollar and speculation from hedge funds further aided oil’s dizzying rise and prompted a Goldman Sachs analyst to forecast that crude could hit US$200 in the next 2 years. But fears of shrinking demand caused by a global recession have sent oil plunging to near US$30 earlier this month – its lowest level in 5 years. The retreat has brought a smile to consumers and businesses BUT the the good times may not last for long, as the Organisation of Petroleum Exporting Countries(OPEC) has promised sharp supply cuts to push oil back to US$75.
(4) 7 Sept – Fannie Mae, Freddie Mac rescued
US MORTGAGE giants Fannie Mae and Freddie Mac were handed a lifeline by the US government, which committed up to US$200 billion (S$290 billion) to boost the much-needed capital the pair failed to get from private investors. The government also offered to buy back mortgage-backed securities and to provide Fannie and Freddie with a liquidity support facility of unlimited size. Their failure was not an option, as they own or guarantee almost half of the country’s US$12 trillion home mortgage debt. US Treasury Secretary Henry Paulson said they were ’so large and so interwoven in our financial system that a failure of either of them would cause great turmoil in our financial markets here at home and around the globe’. Asian financial institutions and central banks – especially in Japan and China – hold billions of dollars worth of debt securities issued by both firms. So the bailout brought lots of cheer to the region, with investors propelling markets from Tokyo to Singapore to their best showing in months.
(5) 15 Sept – Lehman Brothers goes under, Merrill Lynch sold
A FINANCIAL tsunami was sparked when Lehman Brothers – a 158-year-old Wall Street stalwart and the fourth-largest US investment bank – was brought to its knees by the sub-prime mortgage crisis. Facing a mountain of debts, it filed for bankruptcy protection that fateful day – making it the biggest such filing in history. Hours later, the third-biggest investment bank, Merrill Lynch, sought refuge in a US$50 billion takeover by Bank of America (BoA), shocking analysts worldwide. Merrill, a venerable 94-year-old Wall Street institution, agreed to sell itself to BoA for US$29 a share in an all-stock deal. These events created shockwaves around the world and sent stock markets into free fall as investors fled to the safety of government bonds and gold. Even investors in Singapore were not spared. Hundreds of people here, including housewives and retirees, had invested in structured products linked to Lehman, eg. DBS High Note 5…etc. Most have seen their savings largely diminished. Even eight town councils here had about $16 million invested in troubled structured products, which included Minibonds linked to Lehman.
(6) 17 Sept – AIG nearly collapses
ANOTHER instance of the financial crisis hitting Singapore’s shores came when troubled US insurer AIG American came to the brink of bankruptcy after ratings agencies cut its debt ratings. That forced the already cash-strapped firm to immediately raise a further US$14.5 billion to cover its obligations. Scores of Singaporean policyholders besieged AIA’s customer service centre in Finlayson Green to surrender their insurance policies and get their money back. But disaster was averted a day later, when the US government intervened with a US$85 billion rescue loan, saying the insurer’s failure could hurt already stressed financial markets and the economy. Back home, AIA Singapore also assured policyholders that it has enough funds to meet its obligations. It also moved with the Monetary Authority of Singapore(MAS) to calm fears that AIG was so short of ready cash that it would reduce the capital of its subsidiaries or tap into its booming Asian operations for cash.
(7) 27 Oct – Bloody October
STOCK markets, especially those in Asia, were savaged in late October. The carnage was especially bad on Oct 27, when investors dumped regional stocks on fears that government action would not be enough to stave off a deep global recession. HK’s Hang Seng Index saw its biggest drop since 1997, while Japan’s Nikkei 225 index plunged to a 26-year low. In Singapore, $123.5 billion was erased from the market value of stocks that month, with the STI plunging as low as 1,473 points. According to financial information provider Standard & Poor’s Index Services, world equity markets registered their worst month in history, as investors lost an estimated US$5.79 trillion in that time.
(8) 1 Dec – US officially in recession
ARGUABLY the world’s worst-kept secret was confirmed when the National Bureau of Economic Research (NBER) – a private, non-profit research body – concluded that the US has been in recession since December last year. The last time the US was in a recession was in 2001, and this would make it the longest contraction since 1982. If the recession lasts for 5 more months, it will become the most lengthy since the Great Depression. Unusually, the NBER does not define a recession as 2 straight quarters of shrinking economic output. Instead, it looks for a decline in economic activity, spread across the economy, and lasting more than a few months. Some economists predict that the US economy will contract by as much as 5% in the current 4th quarter. The US joined other economies officially in recession, including Singapore, Hong Kong, Japan, New Zealand, Ireland, Italy, Germany and Britain. The euro region and Japan both fell into a slump in the 2nd quarter of this year, making it the first simultaneous recession in all 3 regions in the post-war era.
(9) 11 Dec – Madoff scandal
INVESTORS big and small were rocked when top Wall Street broker Bernard Madoff was arrested and charged with fraud in one of the biggest-ever such cases. This allegedly involved a loss of up to US$50 billion in cash and securities. The ex-Nasdaq chairman was accused of running a ‘giant Ponzi scheme’ – a pyramid scheme in which early investors are paid their promised high returns with money pulled in from newer investors. Big names caught in the scam included Britain’s Royal Bank of Scotland, HSBC Holdings and Man Group, France’s BNP Paribas, Spain’s Grupo Santander and Switzerland’s Union Bancaire Privee and Benbassat & Cie. Even local insurer Great Eastern Holdings said it has $64 million of indirect exposure to Madoff’s funds. Earlier this week, a French fund manager who lost more than US$1 billion of his clients’ money in the scam committed suicide at his Manhattan office.
(10) 16 Dec – Fed cuts interest rate to near ZERO
THE US Federal Reserve made an unprecedented move, cutting its target rate for overnight loans between banks to the lowest level since it started publishing the target in 1990. The Fed slashed rates from 1% to a target range of 0% to 0.25%, and said it would keep rates ‘exceptionally low’ for some time. With no room to cut rates further, the spotlight has now shifted to stimulus packages, particularly the ambitious one being drawn up by US President-elect Barack Obama. Economists expect the FED to expand its purchases of assets to enlarge its balance sheet. This could include buying corporate debt or state municipal bonds to ease the credit squeeze in those markets. However, they also warn that the near-zero interest rate could push the US into a liquidity trap like the one experienced by Japan in the 1990s, when the economy simply refused to respond to rate cuts.
Will 2009 be a better year than 2008? I certainly hope so!! My heart hope so, BUT my head think otherwise. Nevertheless, it is always good to be positive-thinking, right? Wishing everyone of you guys out there a Happy, Healthy and Prosperous 2009!!
Cheers 
Source: Straits Times
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