by Mark Skousen, Investment U Research
Tuesday, August 21, 2012: Issue #1843
“The government makes capitalists and business people rich in America. The losers are the working middle class and poor.”
- Robert Kiyosaki
Two thousand wealthy investors and concerned citizens jammed into this year’s FreedomFest in Las Vegas to hear over 150 speakers talk mainly about the threats to our wealth, and how to survive and prosper during the ongoing financial crisis.
Among the star speakers were Steve Forbes, Senator Rand Paul, and Oxford Club members Alex Green, Marc Lichtenfeld and Steve McDonald and Wall Street Daily’s Karim Rahemtulla. (For a full report and how to buy the audio recordings, go to www.freedomfest.com.)
Without a doubt the most controversial speaker was Robert Kiyosaki, the real estate guru from Hawaii and author of Rich Dad, Poor Dad. He was the final speaker at FreedomFest, and he didn’t disappoint the crowd.
He bluntly told the audience that the richest people in America are capitalists and business people who take advantage of the system through cheap money, debt financing and tax shelters, not the hard-working employees who save money, buy a home, pay off their debts, and invest long term in a 401k. “They are the losers,” he said.
He accused the public schools of failing to teach sound financial principles. “Most of the teachers are not capitalists – they are socialists and fascists!” he declared.
He said what the public schools do teach is to avoid risk at all costs and be dependent on the government. “They teach that the government should take care of the people and control the economy.”
Moreover, they emphasize careers that lead to dependence on the state, especially after they retire on Social Security and Medicare. “They teach students to stay in school, get a degree, get a job, work hard, save money, buy a house, get out of debt and invest for the long run in the stock market.” This “safe” approach is the “worst advice,” he said, because you’re at risk of losing everything when the market collapses or the government runs out of money.
The audience reaction was either applause or a shocked look on their faces.
What to do? His topic was upbeat: “Be the Fed: Gaining Your Unfair Advantage in an Unfair System.” If you would like to hear his speech, go to www.miracleofamerica.com to reserve a copy.
His advice: Be a capitalist and take full advantage of the government’s easy-money policies and tax breaks. How? By using your savings, home equity and OPM (other people’s money) to invest in a business or real estate. He does both. He has a publishing house that employs a thousand people, noting that his appearance on “Oprah” led to sales of one million copies of Rich Dad, Poor Dad.
He remarked, “I made $5 million for one hour of work!” (According to Kiyosaki, Rich Dad, Poor Dad is the No. 1 financial education book ever written, with 35 million copies sold in various editions and translations.)
But he’s primarily a real estate speculator. He told us that he and his wife have over 3,500 rental units that generate millions of dollars in positive cash flow every year and owe little or no tax each year.
Of course, to do that requires huge debt financing, what he calls leverage. “I love debt,” he exclaimed. “I have about half a billion dollars in debt.” But, he noted, “The government and the Fed punish savers, and reward debtors. The dollar is a debt instrument that loses value every day.”
Who pays off the debt? “My tenants,” he argued.
Finally, he invests in commodities, such as gold and silver, and especially oil. He prefers oil and gas partnerships rather than publicly traded stocks, because of the 30% tax credit on partnerships.
“America is the biggest tax-free country in the world,” he stated emphatically… if you know how to play the game.
My take: Kiyosaki energized the audience and made them think. But his advice is not for the faint of heart. His approach applies to risk-takers who are willing to become entrepreneurs and start their own businesses or leverage their finances into rental properties.
But beware: 80% of all businesses fail. Making money in real estate is not easy. It’s a business like anything else, and if you borrow too much, pay too much for a property, or lose your tenants, you can find yourself in bankruptcy court.
For the majority of investors, there’s nothing wrong with getting a college degree, finding a good job, saving regularly, buying a house, paying off your debts and building a nest egg in stocks, bonds and commodities (including gold and silver coins). There are many ways to climb a mountain. I’ve met lots of financially conservative men and women who have worked hard and saved and invested successfully and are now multi-millionaires and set for life. You don’t have to own your own business or own dozens of rental properties to find financial independence.
You can make money – a lot of money – in the stock market if you know what you’re doing. There’s risk in everything, including stocks and real estate. As J. Paul Getty wrote, “The big profits go to the intelligent, careful and patient investor, not to the reckless and overeager speculator.”
In the economy, there are speculative hares and conservative turtles, and both can succeed or fail. Some people are driven to be entrepreneurs and risk takers, and if successful, they can become super rich. Others are destroyed by over leverage and bad timing. Not everyone is suited to go out on their own. For the vast majority, it’s better to be well-educated, save regularly and invest wisely in a diverse portfolio of good companies that are growing and pay quality dividends.
Enterprise Products Partners (NYSE: EPD), the Houston-based pipeline company, comes to mind. It’s been increasing its dividend quarterly since 1999.
Or Aberdeen-Asia Pacific Income Fund (AMEX: FAX), the Australian and emerging market sovereign debt fund, that pays a regular 5% annual yield. I call it “the fund that never loses money.” Over any three-year period since its incept (1986), it has not lost money.
Finally, how about business development companies (BDCs) that finance private companies? I’ve recommended one today for Investment U Plus subscribers that has increased its dividend four times this year as its net asset value grows.
All three of these examples are benefiting from the Fed’s easy-money policies, and are likely to do well in the future. There’s more than one way to “be the Fed.”
And if you’re interested in making good money in real estate, my favorite gurus are John Schaub (www.johnschaub.com) and Jack Reed (www.johnreed.com). I’ve known almost all the real estate gurus over the years, and they are two of the very best.
Good Investing, AEIOU
MarkRobert Kiyosaki Shocks Investors At FreedomFest,