When the Squeeze Is On, Bargains Abound

When the Squeeze Is On, Bargains Abound

As you know, in early August of this year the Dow dropped nearly 400 points. Within hours, I received phone calls from producers at Fox News, CNN, and Bloomberg asking for my perspective on the near-crash.
The first question they asked was, "Are you still investing?" I answered, "Yes." In fact, I told them that on August 9 my wife, Kim, and I closed on a $17 million apartment complex in Tulsa and were quite happy with the investment.
Their next question was, "Do you think the Federal Reserve should intervene to save the economy by dropping interest rates?" My reply then as well as now: "No. This is a capitalist system, not a communist one. Anyone who expects the government to bail them out every time their greed and stupidity causes them to lose money is being foolish."
Winners and Losers
While this sounds harsh (and it is), I explained that the hedge funders, private equity players, and those with other portfolios losing money were big boys and girls. They know the game and how it's played, and shouldn't expect the government to bail them out.
I went on to explain that I did feel for the little guy whose home value was dropping as fast as his 401(k) plan, and that if the little guy loses confidence in the system, a recession may follow.
The ripple effect caused by the subprime meltdown and stock market volatility doesn't inspire confidence or encourage spending. If people stop spending, a lot of small business and families will suffer as the economy contracts. So while I talk tough about the big players, I do feel for average investors.
The Squeeze Effect
I know it's not polite to say "I told you so," but early this year I wrote two columns here predicting that what happened in August might be coming. Well, it did, and I told you so.
In one of those columns, I wrote about the upper-middle class possibly taking a beating by what stock traders call a short squeeze. I also wrote that many middle-class people could be caught in a cash squeeze -- and that's happening, too. Today, millions of people are caught in cash squeezes that cause them to default on their home loans.
A cash squeeze ripples through the economy when people, desperate to hang onto their real estate, begin selling other assets -- such as their cars -- just to raise the money to make their mortgage payments. This is what's happening now, and I expect it'll become worse through October and possibly into the holiday season of 2007, as more and more homeowners reluctantly turn over the keys to their homes.
A Cash Crash
The August stock market mini-crash I predicted was also a short squeeze for cash. Many banks, afraid that hedge funds and mortgage companies were holding subprime debt, called the loans on those businesses. And because the companies' subprime debt wasn't liquid and no one wanted it, the businesses had to begin selling liquid assets that institutions did want to buy.
In other words, just like the middle-class couple forced to sell their BMW at a discount to raise cash, these businesses were forced to sell their liquid assets. And because of the banks' margin calls, good assets dropped in price and bad or questionable assets weren't able to be sold. Consequently, August was a great time to be an investor, because you could pick up great stocks at cheap prices (more on that below).
The Confidence Factor
Another question I've been asked a lot lately is, "Will this loss of confidence spread?" Again, my answer is, "Yes." As I wrote in February, my concern is that we may be entering a deflationary period -- not an inflationary period, as many economists believe. And deflation is a lot harder to cure than inflation.
To cure inflation, the Fed simply raises short-term interest rates. That slows the number of dollars entering the economy. In a deflationary economy, however, you can pump money in, but if confidence is gone the economy can continue to deflate. That is, people become savers, not consumers.
If people become savers, then those in a short squeeze for cash may start selling more and more things of value, such as second homes, boats, cars, and jewelry, just to raise cash. And if people stop spending and start selling, the ripple effect is that millions -- even those with good credit -- begin to get hurt.
Not only will housing prices continue to drop, but restaurants and small specialty shops will suffer, and people will begin losing their jobs. When people lose their jobs the situation grows worse, as more confidence leaks out of the system. The Federal Reserve can lower interest rates again, but once that confidence is shattered, it might take awhile for the economy to rebound.
Drop and Correct
As I wrote in February, when cash and credit are plentiful, the economy expands. When cash goes into hiding, even if the Fed makes more credit available, the economy may deflate or stagnate. It's these last two scenarios that I'm concerned about. If we deflate or stagnate, the financial problems will grow regardless of what the government does.
I stated in my August TV and radio interviews that it's best to just let the economy drop and correct. If the government keeps saving people from their own greed and foolishness, the crash will only be put off to a later date.
I say let the market correct itself, even if it's painful. Let the foolish ones take their lumps and learn their lessons.
Bargains Are Plentiful
The silver lining to all this is that it's a very good time to be bargain hunting. In the current economy, cash is king. As more institutions and individuals are forced to sell assets to raise cash, you may come across that one investment you've been waiting for.
For example, in 1987, the stock market crashed, real estate took a dive, and savings and loan institutions were wiped out. It took about five years for the economy to recover. During that period, the government formed the Resolution Trust Corporation (RTC). The RTC took some of the best real estate in the world and sold it for pennies on the dollar.
Thanks to the RTC, in five short years Kim and I went from struggling financially to becoming financially free. It was a five-year short squeeze on cash that made us rich. I sincerely hope you can profit from the next short squeeze the way we did then, rather than being among those who get squeezed.

Investing in Better Research

Investing in Better Research

A few days ago, a reporter asked me if I was losing money in real estate. My reply was, "No, I'm making money."
Confused, he asked, "How can you be making money during the subprime disaster?" I explained that since the real estate market took a downturn, there were more people renting rather than buying, which is great for my apartment business. I also informed him that I'm raising rents since demand for affordable apartments is so high. When someone moves out, I increase the rent and new tenants line up, which means my cash flow is increasing.
He then asked, "Are you looking for new investments?"
A shocked look came over his face when I said, "I've been investing heavily in the stock market since August 2007. I've moved several million dollars into the market."
"The stock market?" he stammered. "Stocks are crashing. Why are you in the stock market? Besides, I thought you were a real estate investor?"
Ignorance Isn't Bliss
As Warren Buffett has said, it's important for society to have accurate and informed sources of information. While I agree, I sometimes wonder about the intelligence of many financial journalists, both in print and the electronic media.
For example, lately on financial TV stations, the reporters have been talking about the run-up in gold and asking, "Is it time to invest in gold and gold stocks?" What a ridiculous question. Now isn't the time to be investing in gold or gold stocks -- that time was 10 years ago, when gold was below $300 an ounce. Investors should've taken substantial positions when gold was cheap. For reporters to be talking about gold today is no different than them reporting on the hot real estate market in 2005, just before the top blew off.
I had dinner with a friend of a friend the other night and he was telling me about the Rothschild formula for investing. According to him, this involves not participating in the first 20 percent or the last 20 percent of an investment run-up. Instead, it's investing in the middle 60 percent, when risks are low and the direction of the price is determined. As the asset value approaches what appears to be the last 20 percent, you sell and move on to another asset class.
As we all know, most amateurs (and, possibly, many reporters) only participate in the last 20 percent.
Take Notes
I wondered if the reporter who asked why I was investing millions in stocks was an investor himself. I did my best to explain to him that there are two things professionals invest for: 1) Capital gains, and 2) Cash flow.
I said, "The amateurs who come in at the top 20 percent of a market are generally investing only for capital gains. In the last real estate boom, the 'flippers' who got no-document, zero-down loans paid very high prices, and hoped for a greater fool than them to take the property off their hands.
"These are some of the people being faced with forecloses today. They're the investors who make the news -- not the investors who are making money."
The reporter then asked me, "So what do you invest for?"
My reply? "Both. If I can, I want both capital gains and cash flow."
I went on to explain that I was investing millions in stocks that were paying a high dividend -- cash flow -- and also had their prices battered down by the market crash, a loss of capital gains.
Spelling It Out
He wasn't the brightest reporter, since he had trouble with the idea of investing for both cash flow and capital gains. After about an hour of explanation, he finally began to understand that I'm not just a real estate investor -- I'm someone who invests for capital gains at a great price, or cash flow at a great price, regardless of the asset class. If the deal is right, it doesn't matter if it's in real estate, commodities, a business, or paper assets.
Here's an example of capital gains for a great price: Back in the 1990s, every time I had some extra cash I would buy some gold or silver. Although I didn't receive any cash flow from gold or silver I knew I was purchasing the metals at a great price, and that someday those prices would rise again.
An example of buying for cash flow at a great price is when I buy a stock that pays a dividend. I wait until the stock market dips and then buy, which is what I'm currently doing. One of the better companies I've been buying is a bulk cargo shipping company that's hauling U.S. grains to India. The more the dollar drops in value, the more grains we export. Every time the market drops, I buy more of this stock at a great price, because I love the cash flow from dividends.
Finally, an example of buying both capital gains and cash flow at a great price is when I find an apartment building at a bargain, and then increase the rents. By doing so, I increase the cash flow and the property value, which translates into capital gains.
Leave It to the Pros
When I watch professional football, I love listening to John Madden because I know he knows what he's talking about. He's been both down in the trenches and in front of the bench as a coach. He knows the game. By that token, one financial reporter I respect is Bloomberg's Kathleen Hayes. She's a savvy reporter who knows what she's talking about. I wonder about some of the other financial reporters.
The problem with much of the financial news in print and on the web, radio, and television is that it comes from journalists who may not be investors. When I listen to most journalists whine and cry about the subprime mess, the slowdown in the economy, and the volatile stock market, I can all but tell that they're not really investors. None of these events really has much impact on professional investors, who follow market trends and are familiar with the underlying fundamentals of the assets they investing in.
So the next time you hear a reporter ask, "Is this the time to be getting into stocks, bonds, real estate, gold, silver, or oil?" remember that it's probably the time to be looking elsewhere. And keep in mind the Rothschild formula of investing. You never want to be too early -- and you also never want to be too late.

Staying High and Dry in a Recession

Staying High and Dry in a Recession

There's an old saying that goes, "It's a recession if your neighbor loses his job. It's a depression if you lose your job."
Watching the financial news networks and reading the financial publications these days, you'll see many people asking if the U.S. economy is heading into a recession. From my vantage point, the answer is yes. I believe that for many people in certain industries, like real estate, the worst is yet to come.
Economic Ripple Effects
Before getting into why I think there will be a recession, it's important to know the specific definition of the term. Very simply, a recession is a decline in a country's gross domestic product (GDP) for at least two quarters. That means that by Christmas we'll know if we're in a recession or not.
In some ways, the coming recession is a product of the physical phenomenon known as precession. Precession is the effect of bodies in motion upon other bodies in motion -- or, more simply, a ripple effect, like when you throw a stone into a still pond and the waves emanating from it overlap.
While there are many such processional "waves" in the coming recession, one is the lack of integrity in the U.S. monetary system. The United States has defaulted on its financial promises many times in recent history. In 1934, we defaulted on domestic gold redemption. That year, it became illegal for U.S. citizens to own gold. Instead, the government required Americans to turn in their gold, and they were paid $20 in paper money for every ounce of gold they surrendered.
Once the gold was collected, the government raised the price of gold to $35 an ounce. Talk about a lack of integrity. And in 1968, the U.S. defaulted on silver redemption, taking U.S. dollars backed by silver out of circulation. Finally, in 1971, the U.S. defaulted on international gold redemption.
International Impact
Another reason for the coming recession is the subprime mess. And while issues related to the subprime fiasco may seem domestic, they actually have severe international consequences. The subprime mess seems to be a problem associated with lower-income people who can't afford their homes, yet it's really the tip of a very large international iceberg, and it'll affect all of us. Here's why.
In the Sept. 12, 2007, issue of Business Week, Kerry Capell asked the question, "Could any country be more exposed to the credit crunch than the U.S.?" The answer: "You bet, and that place is Britain."
Unlike many of its European neighbors, Britain shares many of America's financial traits. In the last few years, access to cheap credit in Britain has fueled a decade of economic growth, with home prices tripling in 10 years -- an even faster rise than in the United States. With cheap borrowed money, the English consumer has caused the British economy to boom; consumers are responsible for two-thirds of the British economy.
Today, Britain is more dependent upon financial services than we are. So what will happen to the world if both England and the United States go into a recession? The precessional effect is bound to be dire -- especially for working people.
Too Much Money
As strange as it may seem to the average person, the problem is not a shortage of money -- it's too much money. The world is choking on too many U.S. dollars.
Normally, when a currency gets into trouble as the dollar is now, all the country has to do is raise the interest rates on their bonds and things are fine again. But because of the subprime meltdown, the Federal Reserve can't simply raise or lower interest rates.
In simplified terms, the Fed must keep rates low in order to save the domestic economy. This causes the international economy to dump the dollar by not buying our bonds, which is one reason why the price of gold keeps going up -- it's the true international money. And the rise in its price (and in the price of oil) signals the loss of the purchasing power of the dollar; the world simply doesn't want any more dollars. This is a ripple effect from 1971, when the dollar came off the gold standard.
Less for More
The tragedy of this excess of money is that most of the world's workers have to work harder to earn less. This is because the currencies of the world are becoming less and less valuable. Even if workers get pay raises, the boost won't be able to keep pace with declines in the purchasing power of money, increases in expenses such as oil, decreases in the value of homes, declines in the value of stocks, and increases in taxes.
Just look at what's happened in the last decade. Ten years ago, gold was about $275 an ounce. Today, it's over $700. That means that, compared to gold, your income would've had to go up by 250 percent just to keep up with the loss in purchasing power of the dollar. Or, compared to oil -- which was about $10 a barrel 10 years ago and today is over $80 a barrel -- your income would've had to go up by 800 percent.
Sure, there are many people whose incomes have gone up way beyond 800 percent in the last 10 years. The problem is that most people's incomes haven't kept pace, and they're technically in a state of personal recession with no way out.
Throw Yourself a Lifeline
As the global economy continues to gyrate, you'll hear more and more people calling for the Federal Reserve to either lower or raise interest rates. The problem is that the Fed has less and less power to do much.
If it tries to save the domestic economy, the international economy will pound us. If the Fed tries to save the dollar internationally by raising interest rates, it'll kill the domestic economy.
Instead of looking to the Fed to save you, then, I recommend you save yourself by investing in real international money. One way to do so is by purchasing silver. Gold is expensive, but silver is still a bargain even for the little guy. When the recession comes, the ripple effect on your financial future will be immeasurable.

Future Tense

Future Tense

Most financial advisors say you can't predict the future. These experts claim you can't pick a market's top or bottom. And since you (or they) can't predict the future, they advise that you just leave your money with them for the long term.
For most people, this is good advice. But for those who want to get rich, being ahead of the future is one of the best ways to amass wealth.
The best way to predict the future is to study the past, or prognosticate. My rich dad often said, "There's a difference between a fortune-teller and a prognosticator." That's why he encouraged me to take the study of history seriously.
Read the Future
Starting in the fifth grade, my development as a prognosticator began with the study of the great explorers such as Columbus, Cortez, Pizarro, Marco Polo, Magellan, and others. They traveled the world in search of gold and international trade, and I try to follow in their footsteps.
Over the years, I've read some great books on economic history that have opened my mind to the world we face today. Some of the books that have altered my vision of the future are:
• "Critical Path" by R. Buckminster Fuller: Not an easy book, but one of the best I've ever read; it changed the direction of my life. Even though Fuller died in 1983, his predictions are coming true today.
• "The Worldly Philosophers: The Lives, Times and Ideas of the Great Economic Thinkers" by Robert Heilbroner: This book is essential for anyone who wants to see history through the eyes of economists. A very interesting read, even though it's somewhat dated.
• "The Dollar Crisis: Causes, Consequences, Cures" by Richard Duncan: This book is essential reading for anyone who wants to survive the next 20 years. It explains why the world is entering a global financial crisis, and explains why savers are losers.
World-Class Prognostication
I also follow the prognostications of James Dale Davidson and Lord William Rees-Mogg. Their 1987 book, "Blood in the Streets," predicted that year's stock market crash and the bankruptcy of the savings and loan industry. When their forecast came true, millions of average investors who had followed the standard advice to "invest for the long term" lost billions of dollars. But the 1987 crash made me millions, because I followed the advice of these two prognosticators.
Their next book, "The Great Reckoning: Protecting Yourself in the Coming Depression," predicted the break up of the Soviet Union, as well as the secession and break up of Yugoslavia and the ensuing tragedy of ethnic cleansing.
In 1997, my wife Kim and I were invited to Washington, D.C., for the launch of Davidson and Lord Rees-Mogg's latest book, "The Sovereign Individual." Many dignitaries, business leaders, and investors were there. Obviously, we had all gathered to listen to the authors' predictions for the year 2000 and beyond. Until then, I thought I had a pretty open mind. But as we listened to their predictions, Kim and I had a tough time grasping the magnitude of what they had to say about the near future.
Predictions Come True
As the saying goes, "Your mind is like a parachute -- it only works when it's open." Rather than object, question, and criticize -- as many in the audience at that reception were doing -- I simply took the book home and studied it. And the closer I studied it, the more I realized it was similar to past prognostications. As a result, between 1997 and 2000, I radically altered my thinking, my businesses, and my investment strategies.
In previous articles for Yahoo! Finance, I predicted the real estate crash, the fall of the dollar, and the rise in commodity prices. In future pieces, I'll continue to keep my mind open and peer into the future. In the meantime, if you're anxious to see what's coming up in finance, I recommend reading "The Sovereign Individual" and "The Dollar Crisis." Yesterday, these books were about the future. Today, they're about today.
In closing, remember that there is a difference between a fortune-teller and a prognosticator. I'll see you in the future.

The Profit of Doom

The Profit of Doom

Prophets of doom have always taken risks in terms of ridicule and humiliation. If you stand on a street corner holding up a sign that reads "The End Is Near," passersby will laugh and heckle. People will say you're like Chicken Little, running around telling people the sky is falling.
Yet after an economic crash like the subprime-induced one we're experiencing now, people always say, "Why didn't someone warn us?" or "What's the government doing to save us?"
Well, in May, the government will reward the kind of greed and ignorance that sparked the subprime mess with a $168 billion stimulus package. Instead of heeding the warnings of the markets, the incompetent and irresponsible get bonus checks. Small wonder the country has money problems.
Ignored Warning
As for "the end is near" proclamations, the Jan. 11, 2008, U.S. edition of the Financial Times published one of the biggest ones I've ever seen. Next to a photo of Federal Reserve Chairman Ben Bernanke, the front-page headline read, "U.S.'s Triple-A Credit Rating Under Threat."
Unfortunately, not many people paid attention to it. I doubt that many people even know what it means, or what Moody's is, or why their warning is important. In overly simplified terms, Moody's was saying that the United States may soon become a subprime nation.
That is, the world markets will no longer recognize us as a financially responsible country, and we won't be able to maintain our financial and economic supremacy. In short, the end really is near -- from Moody's perspective, it's less than 10 years away.
The Empire in Decline
Worse, none of the leading presidential candidates even mentions this potential downgrading of credit worthiness as a problem. While I think it's noble that Barack Obama and Hillary Clinton campaign for universal health care, I've never heard either of them mention the fact that we can't afford the health care we already have.
Do I think John McCain (or, in a long-shot, Mike Huckabee) would do a better job than the Democrats? No. I have no confidence in either party or the current processes of government to tackle this issue. The problems of health care and Social Security have grown too big and are clearly beyond our control.
All empires come to an end, and the American one is no exception. We've fought too many foreign wars, swept too many domestic problems under the rug, and paid for our greedy consumption with money borrowed from too many countries around the world. The end isn't just near, it's inevitable.
Bad Times, Few Solutions
In less than three years, the first of approximately 75 million American baby boomers will turn 65. No government can change that, so until someone discovers the fountain of youth the end is not far away. In a few years, the U.S. government will begin to operate in the red, paying for campaign promises made years ago by politicians who are no longer in power.
Do the math. If 75 million baby boomers begin collecting $1,000 a month in Social Security and Medicare benefits, that comes to $75 billion in additional monthly spending. That's a lot more than the one-time $168 billion stimulus package due out in May.
Why would anyone want to run for president at this point in history? Do they believe they can solve our growing economic problems? Or will they do what every other politician has done in the past -- simply leave the problems for their successor to solve?
Don't get me wrong -- I'm impressed with the people running for president. I love the fact that we have a woman, an African-American, a war hero, and a Baptist minister to choose from. I just feel the looming financial problems are beyond their control.
The Looming Gloom
Do I see doom and gloom ahead? Absolutely. But I also see tremendous opportunities made possible by the impending murk. In fact, that Financial Times article about the downgrading of U.S. credit worthiness only validates my current investment strategies.
Regardless of what our national credit rating is, people will always want a roof over their heads, food on their tables, fuel for their cars, and clothes on their backs. Instead of betting on the Democrats or Republicans to take care of me, I would rather count on my financial IQ to guide me through the coming years. I see it as my personal responsibility to invest wisely in the equities of strong companies, well-financed real estate, energy, commodities, and precious metals, and minimize my taxes.
The people I'm concerned about are the ones who are watching their retirement accounts dropping in value with the stock market, their homes lose value rather than appreciate, and their purchasing power decline as the dollar drops.
Always a Silver Lining
For these people I'm an advocate of financial education, but I also know that many of them aren't interested in becoming more financially astute. So instead, I recommend that they buy silver coins, as long as silver is under $25 an ounce. Today, silver is cheap and easy to acquire and manage, while real estate and businesses are both management-intensive; silver requires no management, expect for a safe storage place. In addition, the iShares silver ETF (SLV) is convenient.
Silver is consumed in many industries, and it's reported that the world has less than a 10-year supply of it left. That's why I believe silver is currently one of the best investment opportunities there is -- even for people with limited financial training.
Even if the end is near, there's always a silver lining.

Throwing Good Money After Bad

Throwing Good Money After Bad

All booms eventually go bust.

We all remember the stock market crash of 2000, and most of us remember the real estate crash after the implementation of the 1986 Tax Reform Act. Today, many people are anticipating another real estate crash.

Unfortunately, despite our understanding of booms and inevitable busts, it's always near the top of a boom that "dumb money" buys in. Currently, this has set the scene for a potential market bust of which few people are aware. I'll describe it today's column, and advise how best to prepare in my next column.

Express-Lane Inspiration

About a year ago, I wrote a warning on readers that the real estate boom was over. How did I forecast the end of the boom? I got my hot tip from the cashier at my local Safeway supermarket.

While she was tallying the cost of my apples, broccoli, and steaks, she handed me her new real estate agent's card and invited me to call her for my next real estate investment. Moments later, I was home writing that column. As my rich dad used to say, "When dumb money chases smart money, the party's over." Needless to say, many real estate agents and investors wrote me nasty notes.

I'm not a hundred-percent certain where things are going today. Most economists are forecasting a strong economy, but economists worry me more than newly minted real estate agents. Most seem to be happy that inflation is in check; when I hear that inflation is in check, I begin to think about deflation, and as most of us know, deflation is much, much, worse than inflation.

An Inconvenient Truth

In the simplest terms, inflation occurs when there' too much money in the system. On the flip side, deflation occurs when there are too few dollars in circulation. When that happens, prices start to fall. For example, in inflationary times, prices of houses go up. In deflationary times, prices of houses come down. If prices of houses begin to drop too fast right now, it could be 1986 all over again.

I wrote a column in 2005 about how I love debt and my credit cards. The trouble is that most people do. Today, you can qualify for a loan to buy a house simply if you're alive and breathing.

The strong economy we've been experiencing for years has thus been built on dumb money -- in addition to smart money -- borrowing more and more. Even the U.S. government has had a field day borrowing money to do such things as fight a war and attempt to rebuild Iraq and Afghanistan rather than rebuild our country. And the inconvenient truth about debt is that it has to be paid back.

A Certain Ratio

For the next two years, I'm cautioning people to watch their ratios between good debt and bad debt, and keep liquid reserves such as cash, gold, or silver.

Good debt is debt that makes you rich. An example of good debt is the debt on the apartment houses I own. That debt is good only as long as there are tenants to pay my mortgages. If tenants stop paying their rent, my good debt turns into bad debt.

Most people don't have good debt -- all they have is bad debt. Bad debt is debt that makes you poorer. I count the mortgage on my home as bad debt, because I'm the one paying on it. Other forms of bad debt are car payments, credit card balances, or other consumer loans.

On our home, my wife, Kim, and I keep a 25 percent debt-to-equity ratio. In other words, our debt is 25 percent of the home's value. Unfortunately, many people have an 80 percent or higher debt-to-equity ratio. That means the debt on their home is 80 percent and their equity is only 20 percent.

On our investment properties, we carry a higher debt-to-equity ratio. To protect ourselves, we have cash reserves to cover the expenses of the properties. For example, in case all the tenants leave and no one is left to pay the mortgage and expenses, we have separate funds for each property, with enough liquidity -- i.e. cash, stocks, and bonds -- to carry the building for a year. Unfortunately, the dumb-money crowd has no reserve funds for their properties.

Where Deflation Does Its Damage

In a deflationary market, the value of your home can drop. If the value drops, the bank may call in your loan. Even if you've never missed a payment, and even if you're ahead on the payment schedule, the bank can call in your loan if they feel the value of the property is lower than the loan amount.

For example, say you buy a house for $100,000 and put 20 percent down and borrow $80,000. If the market deflates and the value of your home drops to $70,000 (because everyone else is selling their homes to get out of debt), the lender may ask you to pay the $80,000 you owe immediately.

If such deflation happens, cash will become king. There will be half-price sales on BMWs, expensive restaurants will close, and people will be out of work. And anybody who caters to people with dumb money will be in trouble. As I said before, deflation is much worse than inflation.

Smart Money, Bad Times

The good news is that during deflationary times, smart money reenters the market, so crashes are great for smart people with smart money. Instead of listening to the optimistic economists, then, you should eliminate bad debt and improve your debt-to-equity ratios on good debt.

Most important, study; if you want to be smart, you need to learn. I'll discuss what you should study in the second part of this column. For now, be aware that if deflation comes and there's a recession, it won't have much effect on the poor. Instead, it'll punish middle-class people who think they're rich because their houses and stocks have gone up in value.

I'll explain more in a couple of weeks.

Welcome to Turbulent Times

Welcome to Turbulent Times

The Sunday, Sept. 30, edition of the New York Times featured two articles that should be cause for alarm.

"What Makes a Monk Mad" was about civil unrest in Myanmar, formerly Burma, led by Buddhist monks. This past summer, the monks led huge demonstrations in part because the government tried to suppress protests against high gas prices.

The second article, on the same page, was titled "Costly Fuel Is Never Far from a Match," and featured a photograph of a gas station in Tehran that was burned this summer by rioters. Again, the issue was high gas prices.

The Center of Our Lives

Both articles emphasized that oil and gasoline prices are causing unrest all over the world, even in oil-rich countries. Governments have had to choose between allowing prices to rise, as they did in Myanmar, or subsidize fuel costs to keep prices low, as in Iran.

It costs governments money to keep fuel prices low. Oil-rich Yemen, for instance, devotes 9 percent of its GDP to making sure its people don't riot when oil prices rise. But the problem with cheap, subsidized fuel is that it creates more demand, and thus costs the governments more money. Countries like Iran, Yemen, Colombia, and Nigeria could go broke if they keep providing cheap gas to keep people happy.

Fuel prices are at the center of our lives. They affect our ability to travel, stay warm, and feed ourselves. That's why governments the world over have done their best to dampen the effects of oil prices that have tripled over the past four years. As David Goldwyn, an assistant secretary of energy in the Clinton administration, said in one of the Times stories, "Some countries are hiding the realities of high fuel prices to keep political peace." If oil prices continue to rise, as I expect they will, there will be more events like the protesting monks in Myanmar and the match-throwers in Iran. It seems that world peace depends on cheap oil.

Life Isn't Fair

Meanwhile, the effects are also felt closer to home. I recently had a conversation with Gilbert, a loyal employee of my gym for more than 15 years. He's always well-groomed, punctual, and cheerful, even at five in the morning. After my workout, Gilbert came up to me and said, "Can I ask you a question?"

"Sure," I said. "What's on your mind?"

"How's the economy?" he asked cautiously. "You know a lot about money. What do you think is going to happen?"

"What do you think?" I replied. "How does the economy look to you?"

"I think it looks bad. The gym froze my wages a year ago. Two days ago, they asked us all to take a ten percent cut in pay. They say they have to cut our pay because the expenses to run this gym are going up. They say if they raise prices, members like you will go to another gym."

"And do you believe them?" I asked.

"Yes, I do," said Gilbert. "My wages are going down and I can see prices for gasoline and food going up. I think the economy is in bad shape. I'm using my savings to live. I'm very worried."

"I'm very worried, too," I said softly.

"So is everyone in financial trouble?" asked Gilbert.

"No," I replied. "The rich will get richer, even in a bad economy."

"How can that be?" Gilbert said. "We all live in the same country. How can the rich get richer while my family becomes poorer? Are you getting richer?"

I slowly nodded my head.

"That isn't fair," Gilbert said.

"I agree," I said. "It isn't fair."

All of us know people like Gilbert. He's in trouble, and so are the rest of us, regardless of how much money we have.

More Expensive to Live

That's depressing news, but are we headed for a depression?

I believe the world economy will continue to inflate, which means prices will keep going up. Whether we enter a depression or -- more likely -- a recession, there will probably be hyperinflation and life will become very difficult for the Gilberts of the world.

Not only will fuel costs continue to go up, so will food costs. As our dollar drops in value, countries like India and China import more food from the United States. This is bad news for Gilbert, although I've done very well investing in companies that produce and export food to the developing world.

The Turbulence Is Here

To make matters worse, the Iraq war is costing the United States $500,000 a minute. At the same time, President Bush vetoes health insurance coverage for the children of people like Gilbert. Something's very wrong with a nation that would rather spend money on war than take care of its children.

But life is about to become very expensive for all of us. Former Federal Reserve Bank chairman Alan Greenspan recently warned that an "age of turbulence" will begin around 2010 or 2011, when baby boomers begin to retire.

To me, if even the normally peaceful monks of the world are mad, the age of turbulence has already arrived.

TOMORRRRROWWWWW

TOMORROW

THE MOST LIFE DESTROYING WORD OF ALL IS THE WORD TOMORROW.

"THE POOR, THE UNSUCCESSFUL, THE UNHAPPY, THE UNHEALTHY... ARE THE ONES WHO USE THE WORD TOMORROW, THE MOST."

THE PROBLEM WITH TOMORROW IS THAT, IT DOES NOT EXIST...!

ALL WE HAVE IS TODAY!

"TODAY IS THE WORD OF THE WINNERS AND TOMORROW FOR LOSERS.

VIDEO

Investing: Go for Gold and Silver, Not Green

Investing: Go for Gold and Silver, Not Green

I'm very bearish on the U.S. dollar and have been for years. That's why I have so many of them. This sounds like a contradiction, but let me explain. The reason I have so many dollars, even though I think they're worth less and less, is because I don't hang on to them. In my mind, cash is trash.
One of the reasons why we have this enormous gap between the world's haves and have-nots is because the have-nots value money -- they work for it, save it, cling to it, and lose it.
A friend just bought a new SUV. It's a beautiful vehicle. The problem is, the vehicle lost nearly 20% of its value the day he drove it off the lot. He's now in debt, paying off a vehicle that's dropping in value with a dollar dropping in value. He's a double loser.
Cash on the Move
Warren Buffett often says, "The best way to get rich is to not lose money." When people purchase consumer items such as a new car, use debt to finance things that shrink in value, or save U.S. dollars, they're losing money. Some people call it inflation, I call it devaluation.
Psychologically, the more Americans' cash -- and the things they buy with it -- decline in value, the more they worry about money. Many begin to work harder or, even worse, go deeper in debt purchasing more consumer items with sliding value. Unfortunately, many wind up with fewer and fewer dollars that continue to sink in value.
The reason I have more and more dollars is simply because I don't hold on to them. Instead, I do my best to keep my dollars moving into assets that are going up in value, not down.
In the late 1990s, when people were pouring money into the tech and dot-com stocks, my dollars moved into oil, gold, silver, and real estate, when prices were low. Today, because the dollar continues to drop in value, I keep moving my money into those same asset classes, although much more cautiously.
Impending Financial Disaster
The primary reason why I keep my dollars moving is because I'm bearish on the greenback. We have all heard the saying, "The U.S. dollar is backed by the full faith and confidence of the U.S. government." It is unfortunate that faith and confidence in the U.S. government is eroding. I don't believe Americans have the stomach to make the changes that are required to run a fiscally responsible government and save the dollar.
When President George W. Bush attempted to reform Social Security, that proposal was more unpopular with Americans than the Iraq war. People love their entitlements. When Bush pushed the Prescription Drug Benefit plan through, I decided the U.S. dollar is toast. To me, all hope of avoiding financial disaster was gone. The American people have voted.
My concern is that very soon, citizens of the world will tire of America's gross fiscal mismanagement and hesitate to take U.S. dollars. In order to keep the world interested in the greenback, interest rates must rise. When that happens, U.S. assets, especially paper assets such as U.S. stocks, bonds, mutual funds, and savings will drop in value. Some real estate prices will increase because replacement costs are high, but overvalued real estate will drop.
At the risk of sounding like a politician who flip-flops, there will still be paper assets and real estate that will rise in value. The secret to surviving in paper assets and real estate is to be very careful and very selective. People who diversify will lose. People who focus will win.
Americans Are Still Asleep
The secret to surviving the next few years is keeping your wealth in real money, not in the U.S. dollar. Buy things that hold their value and are exchangeable all over the world. Commodities such as gold and silver have a world market that transcends national borders, politics, religions, and race. A person may not like someone else's religion, but he'll accept his gold.
One of the reasons why I'm bullish on gold and silver is because the American public is still sound asleep to this asset class. Most Americans have no idea how or where to buy physical gold and silver. The outlets that sell gold and silver I have visited are already low on inventory.
If and when the American public wakes up to the reality that their dollars are not money, but a currency, the panic and stampede will begin. Should that happen, today's prices for gold and silver will look like bargains.
Today, very few people realize that Warren Buffett reportedly holds one of the largest caches of physical silver in America. He purchased silver in the late 1990s, when it was cheap -- and while others were criticizing him for not investing in tech stocks.
The Rewards of Detachment
As I write, hundreds of millions of dollars are searching for a safe home, a shelter that will protect the dollar's value from the crash. It's unfortunate that during this period, the rich will once again become richer, and the financially naïve will again worker harder for U.S. dollars, doing their best to save as many as they can, only to wind up with fewer and fewer dollars.
So the reason I have more and more dollars is simply because I don't hang on to them. During this volatile era, it's best to keep your wealth moving up as the dollar continues to head down.

Work Hard, Earn Less?

Work Hard, Earn Less?

American workers have been getting the short end of the stick since 1943.That's when the United States Congress, in response to the costs of World War II, passed the Current Tax Payment Act. The act requires employers to withhold taxes from their employees' paychecks, overturning the previous system in which workers were paid first and settled their tab with the government later.The Current Tax Payment Act is why so many people look at their paychecks and wonder where all their money has gone.My poor dad -- who also happened to be my real dad -- often said to me, "Go to school, get good grades, so you can find a good, secure job with benefits." My rich dad, on the other hand, had a different point of view.Instead of advising me to work hard for money, my rich dad said, "If you want to earn more and pay less in taxes, you need to have people and your money work hard for you." In other words, my rich dad encouraged me to be an entrepreneur and investor.Today, workers who save money and invest in a 401(k) plan are the highest taxed people in America. Now, I can hear some of you asking, "Isn't saving money and investing in a 401(k) having your money work for you?"No -- at least not according to the IRS. A worker's pay is taxed at the highest tax rate possible. So are your savings and income from your 401(k). In most cases, money goes into a 401(k) tax-deferred but comes out as highly taxed ordinary income.One of the reasons the rich are getting richer is because they have more control over our number one expense: Taxes.For example, my passive income from real estate can be the lowest taxed income of all. On one of our commercial properties, my wife and I receive approximately $30,000 a month in income -- almost tax-free. When we sell the property, we can legally take the capital gains without paying capital gains tax, which in our state would be 20 percent. Try doing that with stocks, bonds, mutual funds, or real estate investment trusts (REITS). In fact, mutual funds can be a tax trap if you do not understand the rules.Another example, when we invest in oil and gas projects, we receive approximately a 70% tax deduction and a depletion allowance -- another tax break -- for income from oil and gas revenues. That means if I invest $10,000 in oil and gas, I can deduct approximately $7,000 from my income as well as receive a tax break for income from the sale of the oil and gas.Obviously, I'm not a tax professional and you should not make any tax or investment decisions based on this brief article. My point is this: If I had followed my poor dad's advice and got a job with a 401(k), there would be almost nothing an accountant could do to protect me from higher taxes. The 1943 Current Tax Payment Act saw to that. Today, employees with a 401(k) work hard and earn less.The federal government provides the biggest tax breaks for business owners and investors in oil and gas and real estate. Why? Business owners provide jobs and jobs mean employees who pay higher taxes. The economy needs oil and gas so anyone who explores for oil and gas are given big tax breaks. And people who invest in real estate are given big tax breaks because the government needs investors to provide housing. If investors didn't provide housing, the government would have to.After 1943, people who worked for money lost most of their tax breaks. Now, entrepreneurs and investors get the big tax breaks -- and that's another reason the rich get richer.

Survival of the Richest

Survival of the Richest

Most of us are aware of the sacrificial slaughter of Bear Sterns. Some people call it a bailout, but I call it a handout -- a government handout to some of the richest people on Earth, paid for by American taxpayers.
It's the survival of the richest, and the poorest be damned. There's something dismal about a society that operates by those values.
The Economy on Life Support
I understand why the Federal Reserve did what it did with Bear Stearns. The Fed was doing its job -- acting as the lender of last resort, pumping money into a dying system. It wanted to prevent a run on the bank and economic chaos. It was a very creative financing move, using the Fed's magic checkbook to pump more liquidity into a thirsty market -- sort of like a physician administering life-saving measures to a critically wounded patient.
My problem with the move is that the Fed saved this patient because it's a wealthy one. Saving the biggest investment banks in America is welfare for the rich. Would the Fed do that for you or me if we screwed up our investment portfolio? Is the Fed going to bail out the millions of people facing foreclosure because the value of their homes is less than their mortgages? If I'm a small-business owner and fall behind on my taxes, is the Fed going to pay my taxes for me? If I can't pay off my college loan, will the fed pay it for me?
Aren't these investment bankers supposed to be the smartest guys in the world? Aren't they the people we entrust with our investment and retirement money? Aren't they supposed to be financially fit? Some blame subprime borrowers as the culprits in this mess, but the supposedly brilliant investment bankers bought their mortgages. Was that smart?
A Handout for the Rich
This bailout was a signal to Wall Street that the Fed stands behind them -- that they're on the same team. It was a thumbs-up to the super-rich: "Do what you want. If you screw up, we'll cover your blunders."
Ralph Nader's father purportedly once said that "Capitalism will never fail because Socialism will always bail it out." My concern, especially in this election year, is that socialists will seek revenge. Already I can hear the war cry "tax the rich!" The problem with taxing the truly rich is that the rich simply move their money to countries that treat them and their money with undue respect. And when the rich move their money, the poor and middle class end up paying more taxes.
Not only will taxes go up, but the prices of food and fuel will increase, because the purchasing power of the dollar will continue to decline. This rise in cost of living, plus higher taxes and stagnant wages, could lead to unrest -- protests, riots, and possibly chaos. In other words, what the Federal Reserve was attempting to prevent may happen anyway.
When Capitalism Stumbles
Bailing out the rich means over $800 billion from the Fed's magic checkbook entered the market. Immediately, the stock market rebounded and the price of gold and silver declined. The U.S. dollar strengthened against the euro. While this looks like a good sign, I'm afraid the problem isn't solved. The inevitable may only have been delayed.
Our problem is a toxic U.S. dollar. Printing funny money steals from the poor and middle class, savers, and the elderly. It may be legal, but it isn't moral or ethical. As long as the Fed is allowed to wield its power at will, the prices for food and fuel will only go up.
So will the price of gold and silver. Some are calling for gold and silver to go over $2,500 and $200 an ounce, respectively. Some even believe gold will go as high as $5,000 an ounce. I hope not. While I get excited about seeing the gold I purchased for less than $300 an ounce flirt with $1,000 an ounce, I also begin to worry.
The rise in the price of gold is a sign that capitalism has stumbled. And when capitalism stumbles, workers' wages buy less and savings are wiped out. Even gains from the stock market are diminished because our dollar gains are worth less.
Troubles Past and Present
Throughout history, when capitalism stumbles chaos erupts and sometimes despots take over. For example:
• In 1897, the Russian ruble was pegged to gold and a period of relative economic growth followed. Russia went off the gold standard to finance World War I. The government fell to the Bolsheviks in 1917, and the Russian mafia took control of the economy.
• After World War I, the German middle class was wiped out and Adolf Hitler was voted into power in 1933.
• In the 1930s, China was the only country on the silver standard. In 1935, the nationalist Chinese government started issuing paper money. In 1937, in order to fight the Japanese, the government began printing funny money. The value of their currency went from four yuan per dollar in 1936 to a trillion yuan per dollar in 1949. In May of 1949, the Chinese government fell to Mao Tse-Tung and the Communists.
• In 1984, Yugoslavia hosted the Winter Olympics just as their currency, the dinar, began to devalue. In 1989, the IMF recommended more devaluation and the freezing of workers' wages. Rioting broke out, and in 1989 Communist party leader Slobodan Milsoevic was elected into power. Yugoslavia broke apart as war and ethnic cleansing began.
As capitalism falters, the rich move their money out of the country, violence increases, and politicians promising prosperity are elected. It's happened before, and I fear it's happening again. Trouble brews when we steal from the poor and give to the rich.

the books

"The Poor and the Middle Class Work Hard for Their Money"

" The Rich Have Their Money Work for Them"

EXERCISE YOUR MIND

Excersise Your Mind

My rich dad did not mean 'buy everything you wanted.' He was, though, fanatical about exercising your mind – the most powerful computer in the world. My rich dad said: "My brain gets stronger every day because I exercise it. The stronger it gets, the more money I can make." He believed that automatically saying "I can't afford it" was a sign of mental laziness.
Although both dads worked hard, I noticed that my Poor Dad had a habit of putting his brain to sleep when it came to money matters. My Rich Dad, on the other hand, made a habit of exercising his brain. The long-term result was that one dad grew stronger financially and the other grew weaker.

When Good Advice Isn't

When Good Advice Isn't

In January 1998, I was watching a very popular morning television show. The two very attractive hosts, one male and one female, smiled toothy grins and said, "This morning we have our network's investment expert in the studio to give us her financial advice for the start of the year."
The camera cuts away to an extremely attractive young woman who smiles into the camera and says, "For 1998 my advice is to work hard, save money, get out of debt, invest for the long term, and diversify."
The female host smiles and says, "That is such good advice. I hope everyone follows it."
The male host, frowning a little in an attempt to appear more thoughtful and intelligent, asks, "What do you recommend they invest in?"
The attractive young woman smiles her perfect smile and says she recommends a well-diversified portfolio of mutual funds with an emphasis on the technology sector.
"Great advice," say the male and female hosts in unison. Once again, they smile to the camera and thank the financial expert for her advice and for appearing on the program. And they cut to a commercial. A commercial for a mutual fund company.
Over the next few years, all the way through 2005, this same TV program invited the same financial expert on the program and each time the advice was exactly the same: "Work hard, save money, get out of debt, invest for the long term, and diversify." The only thing that changed was the year and the clothes worn by the three people. If they had simply rerun the January 1998 show, the effect would have been largely the same -- same advice, same smiles ... but horrible results.
Between 1995 and 2005 the millions of people who followed that advice lost an estimated $7-9 trillion. And much worse than losing $7-9 trillion, the people who followed that advice missed out on what the Economist magazine called the biggest financial boom in history. So not only did those investors lose money from the 2000-2003 stock market crash, they failed to make a lot of money in the financial boom in real estate and commodities. That is the price of bad advice.
In upcoming columns, I'll explain in detail why the standard financial advice of "work hard, save money, get out of debt, invest for the long term, and diversify" is bad financial advice because it's obsolete. The world has changed. The advice hasn't.
Rich Dad's Advice
In 1997 my wife Kim, our partner Sharon Lechter, and I self-published a little book titled "Rich Dad Poor Dad." It is a true story of my two dads -- one a highly-educated teacher and the head of education for the State of Hawaii and the other a man who dropped out of school at the age of 13. The superintendent of education is my real dad, the man I call my poor dad. My rich dad is my best friend's father.
The reason the book was self-published was because the major publishing houses rejected it. No one thought it would sell. Today "Rich Dad Poor Dad" has been on The New York Times bestseller list almost five years, a feat accomplished by only three other books in the history of The New York Times. The book has been published in over 44 languages and has sold nearly 23 million copies.
One of the reasons for the book's popularity is because it explains why the rich are getting richer and why millions of others are following risky and obsolete financial advice -- advice such as save money, invest for the long term, and diversify. Another reason for the book's popularity is because many of those who followed my rich dad's advice became very rich during the same period of time when millions of people were losing trillions of dollars in the stock market.
So, I am honored to have been asked by Yahoo! Finance to write this column. For those of you who are familiar with my work, thank you and welcome. For those of you who are not, I think you'll find this column different, a divergence from the standard financial car wash.
If you're looking for new ideas about the world of money, business, and investing then I believe this column will provide it. The information may not be comforting or popular, but it will be factual and come from real life experience. Also, this column is not about advice. What I invest in, while not risky for me, may be too risky for most people. Also, I have no investments to sell you. Although I have founded gold, oil, silver, publishing, manufacturing, and real estate companies, I am not writing to sell you shares in any of them. If I have anything to sell, it would be financial education products -- products that are created to support your financial education.
The reason I write is to enlighten, to open eyes, to entertain, and, most importantly, to educate those who are looking for new ideas about money -- even if unpopular. There are more opportunities to become rich today than ever before, but you may not get rich if you follow the obsolete advice of "work hard, save money, get out of debt, invest for the long term, and diversify." In fact, following that advice may make you poorer.

SAVERS ARE LOOSERS

Why Savers Are Losers?

My poor dad believed in saving money. "A dollar saved is a dollar earned," he often said.
The problem was he didn't pay attention to changes in monetary policy. All his life he saved, not realizing that after 1971 his dollar was no longer money.
You see, in 1971 President Richard Nixon changed the rules of money. That year, the U.S. dollar ceased being money and became a currency. This was one of the most important changes in modern history, but few people understand why.
Prior to 1971, the U.S. dollar was real money linked to gold and silver, which is why the U.S. dollar was known as a silver certificate. After 1971, the U.S. dollar became a Federal Reserve Note -- an IOU from the U.S. government. Instead of our dollar being an asset, it was turned into a liability. Today, the U.S. is the largest debtor nation in history due in part to this change.
Taking a brief look back at the history of modern money, it's easy to understand why the 1971 change was so important.
After World War I, Germany's monetary system collapsed. While there were many reasons for this, one was because the German government was allowed to print money at will. The flood of money that resulted caused uncontrolled inflation. There were more marks, but they bought less and less. In 1913, a pair of shoes cost 13 marks. By 1923, that same pair of shoes was 32 trillion marks!
As inflation increased, the savings of the middle class was wiped out. With their savings gone, the middle class demanded new leadership. Adolf Hitler was elected Chancellor of Germany in 1933 and, as we know, World War II and the murder of millions of Jews followed.
A New System of Money
In the closing days of World War II, the Bretton Woods System was put in place to stabilize the world's currencies. This was a quasi-gold standard, which meant currencies were backed by gold. The system worked fine until the 1960s when the U.S. began importing Volkswagens from Germany and Toyotas from Japan. Suddenly the U.S. was importing more than it was exporting and gold was leaving our country.
In order to stop the loss of gold, President Nixon ended the Bretton Woods System in 1971 and the U.S. dollar replaced gold as the world's currency. Never in the history of the world had one nation's fiat currency been the world's money.
To better understand this, my rich dad had me look up the following definitions in the dictionary.
"Fiat money: money (as paper money) not convertible into coin or specie of equivalent value."
The words "not convertible into coin" bothered me. So my rich dad had me look up the word: "fiat."
"Fiat: a command or act of will that creates something without or as if without further effort."
Looking up at my rich dad I asked, "Does this mean money can be created out of thin air?"
Nodding his head, my rich dad said, "Germany did it and now we are doing it."
"That's why savers are losers," he added. "I fought in France during World War II. That's why I never forget that it was after the middle class lost their savings that Hitler came to power. People do irrational things when they lose their money."
Most economists would disagree with my rich dad's correlation between the loss of savings and Hitler. It may not be an accurate lesson, but it's one I never forgot.
Between 2000 and 2005 housing prices went through the roof. Oil went from $10 a barrel in 1997 to over $60 a barrel in 2005. Gold went from $275 an ounce in 1996 to over $475 an ounce in 2005.
In spite of all these increases in prices, the federal government's economists say, "Inflation is low. It's under control." They are allowed to say that because the government is charged with only monitoring inflation in consumer prices -- not asset prices. The consumer price index (CPI) is the pressure gauge the government watches because they want to make sure the consumer is happy finding bargains at Wal-Mart, which is easy because China is forcing consumer prices down.
The problem is our dollars return to the U.S. to buy our assets. In simple terms, we send cash overseas to buy goods, and overseas investors take our cash and use it to buy our assets. That's why the Wal-Mart shopper finds bargains in the store but can't afford to buy a house, gas, gold, or stocks. Those same "consumers" also worry about their jobs going overseas.
In summary, investors shop for asset bargains, and consumers shop for consumer bargains and try hard to save money that is not really money. That is another reason why the rich are getting richer.
For more on this subject I recommend reading "The Dollar Crisis"by Richard Duncan.

WHY THE RICH GETS RICHER???

Work Hard, Earn Less?

American workers have been getting the short end of the stick since 1943.

That's when the United States Congress, in response to the costs of World War II, passed the Current Tax Payment Act. The act requires employers to withhold taxes from their employees' paychecks, overturning the previous system in which workers were paid first and settled their tab with the government later.

The Current Tax Payment Act is why so many people look at their paychecks and wonder where all their money has gone.

My poor dad -- who also happened to be my real dad -- often said to me, "Go to school, get good grades, so you can find a good, secure job with benefits." My rich dad, on the other hand, had a different point of view.

Instead of advising me to work hard for money, my rich dad said, "If you want to earn more and pay less in taxes, you need to have people and your money work hard for you." In other words, my rich dad encouraged me to be an entrepreneur and investor.

Today, workers who save money and invest in a 401(k) plan are the highest taxed people in America. Now, I can hear some of you asking, "Isn't saving money and investing in a 401(k) having your money work for you?"

No -- at least not according to the IRS. A worker's pay is taxed at the highest tax rate possible. So are your savings and income from your 401(k). In most cases, money goes into a 401(k) tax-deferred but comes out as highly taxed ordinary income.

One of the reasons the rich are getting richer is because they have more control over our number one expense: Taxes.

For example, my passive income from real estate can be the lowest taxed income of all. On one of our commercial properties, my wife and I receive approximately $30,000 a month in income -- almost tax-free. When we sell the property, we can legally take the capital gains without paying capital gains tax, which in our state would be 20 percent. Try doing that with stocks, bonds, mutual funds, or real estate investment trusts (REITS). In fact, mutual funds can be a tax trap if you do not understand the rules.

Another example, when we invest in oil and gas projects, we receive approximately a 70% tax deduction and a depletion allowance -- another tax break -- for income from oil and gas revenues. That means if I invest $10,000 in oil and gas, I can deduct approximately $7,000 from my income as well as receive a tax break for income from the sale of the oil and gas.

Obviously, I'm not a tax professional and you should not make any tax or investment decisions based on this brief article. My point is this: If I had followed my poor dad's advice and got a job with a 401(k), there would be almost nothing an accountant could do to protect me from higher taxes. The 1943 Current Tax Payment Act saw to that. Today, employees with a 401(k) work hard and earn less.

The federal government provides the biggest tax breaks for business owners and investors in oil and gas and real estate. Why? Business owners provide jobs and jobs mean employees who pay higher taxes. The economy needs oil and gas so anyone who explores for oil and gas are given big tax breaks. And people who invest in real estate are given big tax breaks because the government needs investors to provide housing. If investors didn't provide housing, the government would have to.

After 1943, people who worked for money lost most of their tax breaks. Now, entrepreneurs and investors get the big tax breaks -- and that's another reason the rich get richer.

THOUGHTS THAT SHAPE LIVES

Our Thoughts Shape Our Lives
Being a product of two strong dads allowed me the luxury of observing the effects that different thoughts have on one's life. I noticed that people really do shape their lives through their thoughts.
The power of our thoughts may never be measured or appreciated, but it became obvious to me as a young boy that there was value and power in being aware of my thoughts and how I expressed myself. I noticed that my poor dad was poor not because of the amount of money he earned – which was significant – but because of his thoughts and actions. As a young boy having two fathers I became acutely aware of being careful in deciding which thoughts I chose to adopt as my own and to whom should I listen – my rich dad or my poor dad?
At the age of nine I decided to listen to and learn from my rich dad about money. In doing so, I chose not to listen to my poor dad – my real dad – even though he was the one with all the college degrees.

the POOR,MIDDLE CLASS, RICH

"THE POOR AND THE MIDDLE CLASS WORK FOR MONEY."

"THE RICH HAVE THEIR MONEY WORK FOR THEM."

COnTRaSTiNG PoiNt Of ViEW

Contrasting Points of View

Having two dads as advisors offered me the perspective of contrasting points of view: one of a rich man and one of a poor man. The problem was that my rich dad was not yet rich, and my poor dad not yet poor. Both were just starting out in their careers; both were struggling with money and families.
But, regardless of those facts, both had very different points of view on the subject of money.
One dad would say, "The love of money is the root of all evil." The other, "The lack of money is the root of all evil." Having two dads - and loving them both - forced me to think about, and ultimately choose, a way of thinking for myself.
I had to think about each dad's advice and, in doing so, gained valuable insights into the power and effect of one's thoughts on one's life. For example: My poor dad had a habit of saying, "I can't afford it." My rich dad forbade those words to be used. He insisted that I say, "How can I afford it?" One is a statement, the other a question. One lets you off the hook; the other forces you to think. My rich dad would explain that by automatically saying the words "I can't afford it" your brain stops working. By asking the question "How can I afford it?" your brain is put to work.

I HAD TWO DADS

I had two dads - a rich one and a poor one.
One dad was highly educated and intelligent; he had a Ph.D. and had completed four years of under-graduate work in less than two years. He then went to Stanford University, the University of Chicago, and Northwestern University to do his advanced studies. All on full, financial scholarships.
My other dad never finished the eighth grade. Both men were successful in their careers, working hard all their lives. Both earned substantial incomes.
Yet one dad struggled financially all his life and the other dad would become one of the richest men in Hawaii. One died leaving tens of millions of dollars to his family, charities, and his church. The other left a legacy of unpaid bills. Both men were strong, charismatic, and influential. Both men offered me advice, but they did not advise the same things.