2010 predictions - cash is trash

[Russell]

I hope this is not a repost but I found this article quite interesting and I'm not even a fan of Kiyosaki's.

2010 the best of times or worst

[Broken Arrow]

I see two basic flaws with this article.

1. It's a Yahoo Finance article.
2. It's written by Robert Kiyosaki.



Ok, snarkiness aside, I worry about the same thing he does. However, I can't say as definitively as he does that things are going to turn out as bad as he predicts.

For example, he's betting that future mortgage resets are going to hit "solid homeowners" hard. The premise is possible, but the fallout remains to be seen.

Here's a quote that may be of interest to the topic, from the Case-Shiller home price index report:

Coming after a series of solid gains, these data are likely to spark worries that home prices are about to take a second dip. Before jumping to conclusions, recognize that the one time that happened at the beginning of the 1980s, Fed policy saw dramatic reversals, which is very different from the stable and consistent Fed policy we have today. Further, sales of existing homes – those included in the S&P/Case-Shiller Home Price Indices – have been very strong in recent months, working off the inventories of houses for sale.

(Source PDF, published 29-Dec-2009 09:00)

I know Case-Shiller is a price index, but it does reflect the relative health of the overall housing market.

As for the China worries, what I've heard is that China's productions are actually picking up again. China's productions were hit hard throughout most of the recession, because companies canceled their orders to cut overhead while working off of existing inventories. Once the inventories ran out, they started ordering again, albeit in lower quantities to reflect the ongoing low demands. Hence the reason why China's production is picking up again.

For what it's worth, the Baltic Dry Ship index is one such measure of international trade, particularly with China, and it seems to have been ticking up through 2009. (Blue is the dry ship index. Green is the S&P 500 for relative context.)



Now, what a lot of bulls have been calling, based on an index like this, is that this bear market rally could turn bull. Not so fast. Demands are still low, unemployment is still high, and we're still running on stimulus. While turning bull is always possible, it just doesn't seem likely to me right now.

On a related note, the latest unemployment figures just came out today, and at least we're leveling off at 10%.... Anyways, my point is that an inventory rebound should not be mistaken for fundamental growth.

What I find interesting then is that, despite the growing bullish sentiments out there, Kiyosaki is going the opposite direction here and questioning the sustainability of the Chinese economy? Sure, sure. I am well-aware of the potential bubble that the Chinese market is forming just because they do not allow shorting and haven't submitted the Yuan for standardization. But a market crash? In light of actual global demand, increased production, increased exporting, and a viable domestic market?

Even if there should be a crash, I really doubt it would be a heavy one like the ones we've experienced here. Remember, we are a debtor nation. They have a huge cash surplus. We have limited market controls. They have a heavy one. Our currency is relatively weak, whereas theirs is relatively strong.

The thing with Kiyosaki is that he is a perma-bear with a natural preference for commodities. It doesn't matter what the fundamental analysis is. In good times, he buys gold and silver, and in bad times, he buys gold and silver. Regardless of the economic conditions, he always finds a reason to buy what he wants to buy, not whether something is actually a good idea or not.

I don't doubt that he is an informed investor, and I even agree with some of what he said. I just don't think he's an objective one.

[kork13]

Originally Posted by Broken Arrow

I see two basic flaws with this article.

1. It's a Yahoo Finance article.
2. It's written by Robert Kiyosaki.
...
I don't doubt that he is an informed investor, and I even agree with some of what he said. I just don't think he's an objective one.

Regarding #1, I can't much comment. However, I do believe our own Jeffrey occasionally finds his articles on Yahoo Finance.... Just an observation, no more

As for Kiyosaki, I think I agree with you. He has some points bordering on valid, but he also relies alot on what are essentially baseless assumptions of "fact". He doesn't provide much (if any) proof/evidence for many of his statements. Besides, I've always considered him a bit far off the deep end in some respects, particularly his philosophies on real estate and commodities. I have a couple friends who subscribe to him completely, and they're doing just fine, but I don't think I would ever follow his advice too carefully. Take it into consideration? Sure.