For a change of pace, this month's writing has little to do with the social, political, or environmental issues that have characterized recent issues of this newsletter.  Instead, we look at the topic of money, finance, and investment.

The following article was written by Robert Kiyosaki, author of the Rich Dad, Poor Dad collection of books, games, and training programs.  As you will see, he believes we are in for some difficult times ahead.  Lately, I have come across so many people who echo this view - people whose knowledge and experience I respect - that I feel an obligation to forward this information to our Ohana  (Hawaiian word referencing our extended family of friends and loved ones).

So, for what it's worth, I dedicate this issue of Pyradice Perspectives to the thoughts of Robert Kiyosaki.  If you click on most of the links in this newsletter you will be taken to various pages on his website where you can learn more.

ALL BOOMS BUST!
Words of Caution from Robert Kiyosaki

Lately, I have been asked if we are in a real estate bubble. My answer is, "Duh!" In my opinion, this is the biggest real estate bubble I have ever lived through. Next, I am asked, "Will the bubble burst?" Again, my answer is, "Duh!"

It was only a few years ago we were in a real estate depression, which proves how quickly people forget. In 1987, the stock market crashed and the Savings and Loans went out of business. That led to one of the biggest real estate fire sales in history.

By 1991, the real estate market was depressed and it remained depressed until around 1998. In Hawaii, the real estate market remained depressed until 2001. Today, the Hawaii real estate market is on fire and people have already forgotten how bad the market was.

So the answer to the question, "Will the real estate bubble bust?" is an emphatic, "Yes. All bubbles bust." The reason I write this alert is because this time, when the bubble bursts, I think it will be a monster. Never in my life have I seen so much money being made on such weak fundamentals. If you think the last recession caused by the bubble bust was bad, the coming recession will be at least twice as bad. It might lead to a depression.

The reason I put forth this alert is not to frighten anyone. The reason I put forth this alert is to say get prepared for the coming economic changes. Presently, although Kim and I are still buying real estate, we are also selling our "junk" real estate. Eight months ago, Kim put on the market a small apartment house valued at $1 million, for $1.4 million. People complained and no one bought it. So four weeks ago, she raised the price to $2.0 million and it sold in one day for full price. To me, this is more than a bubble... it is a mania.

As many of you know, the best time to get rich is after a crash. My suggestion is: if you are new to real estate investing, this is not the time to jump in. If you are holding "junk" properties that are costing you money, you may want to consider unloading them.

How long will the bubble last and keep expanding? I do not know. I just wanted you to know that I am currently preparing for a crash, an economic recession, and possible global depression. Why? Because this is a very big worldwide bubble... the biggest I have ever seen.

SAVERS ARE LOSERS

Also, I am getting rid of my U.S. dollars. As you may know, the U.S. dollar has lost nearly 40% of its value against other currencies in the last four years. That means if you have $10,000 in savings in the year 2000, it is worth about $6,000 in purchasing power. Rather than holding cash in the bank, Kim and I have been holding our excess cash in gold and silver bars. Why? Because you know that the dollar is falling when the price of gold and especially silver begin to rise. When silver goes higher than $8.50 an ounce and gold reaches $500 an ounce, you will know the end is near. When the crash comes, the currency of many countries will go down in purchasing power as the price of these two precious metals rise in value.

A GREAT BOOK

This past weekend, I held a class for about 150 people on the book entitled "The Dollar Crisis", authored by Richard Duncan. If you want to better understand why the real estate bubble bust and the crash of the dollar will probably lead to a prolonged recession, you may want to read this book sooner rather than later. In a nutshell, we really do not have a real estate bubble... the world is in a currency bubble. In other words, the governments of the world have printed too much "funny" money and cash will soon turn to trash.

Even if you are not in real estate or are saving dollars, you may want to read this book to find out what you need to invest in now, before the bubble bursts. If you are in stocks and mutual funds, you definitely want to read this book.

GREAT NEWS

Again, I do not write to frighten anyone. I write primarily to encourage people to prepare for one of the biggest and best opportunities to win financially. My book, "Rich Dad Poor Dad", came out in 1997, at the height of the stock market boom. In my book I wrote about my rich dad recommending I learn to invest in real estate. The people that followed my book's advice rather than the advice of their stockbrokers, financial planners, and mutual fund advisors, did very well in real estate. Prior to 2001 and the stock market crash, many financial planners and stockbrokers criticized my book. Today, they are quiet. Today, while I am still in real estate, still buying great properties for cash flow and not flipping them, I am concerned about those who are invested in junk properties or are living in homes that they cannot afford.

1. Measured by the increase in asset values over the past five years, the global housing boom is the biggest financial bubble in history.”
    
2. Prices are already sliding in Australia and Britain.  America’s housing market may be a year or so behind.” 
    
3. Not only are new buyers taking out bigger mortgages, but existing owners have increased their mortgages to turn capital gains into cash which they spend.  As a result of such borrowing, housing booms tend to be more dangerous than stock market bubbles and are often followed by periods of prolonged economic weakness.” 
    
4. A study by the IMF found that output losses after house-price busts in rich countries have, on average, been twice as large as those after stock market crashes, and usually result in a recession.”
    
5. Two-fifths of all American jobs created since 2001 have been in housing-related sectors.” 
    
6. The housing boom was fun while it lasted, but the biggest increase in wealth in history was largely an illusion.”
    
7. The day of reckoning is closer at hand.  It is not going to be pretty. How the current housing boom ends could decide the course of the entire world economy over the next few years.” 

You may want to obtain a copy of this issue of The Economist and read the entire two articles and then decide for yourself if there is another real estate boom ahead, or a bust. 

RECESSION OR DEPRESSION 

On Friday, June 23rd 2005, I was on Your World with Neil Cavuto on the Fox Network.  He asked me what I recommended when it came to investing in real estate.  I replied, “If you’re new to real estate investing, this is not the time to get into the game.”   Unfortunately, many people are in the market late and not only have paid too much for their homes, they are over-leveraged.  

The Economist article went on to say, “42% of all first time buyers and 25% of all buyers made no down-payment on their home purchase last year.”  That is what I call over-leveraged.  They bought late in the cycle, probably paid too much, and have signed their lives away on the dotted line.  I am concerned for these people. 

In 1929, the stock market crash led to The Great Depression. Some of the causes of the Depression were excess credit and too many people buying stocks on margin... i.e. leverage.  In 2005, once again there is too much credit and instead of stocks, individuals are purchasing real estate with leverage.  So is it “Deja-vu all over again?” History shows that there is a depression approximately every 75 years.  The last depression occurred 75 years ago.  Is it time for a really big bust or will the boom continue on?  Only time will tell. 

HOW I AM INVESTING TODAY 

As many of you know, I have been in gold and oil for several years now, beginning in 1996.  While Kim and I have continued to invest in real estate, I have been more active in taking my Chinese gold company public on the Toronto Venture Exchange.  I have also invested in several oil and gas wells. 

When it comes to real estate, Kim and I have let go of non-performing properties and made several million dollars.  Does this mean we are selling real estate?  The answer is “No.”  Although selling, we are still buying property.  We are being very selective.  Although we have “flipped” properties, our primary objective is good properties in good locations with a positive cash flow. Currently, Kim and I are buying properties in Oregon as well as in Arizona. We bought them because we believe they will do well regardless if the real estate market booms or busts. 

PROBABILITY VS PREDICTION 

Although I have made predictions, I don’t like to.  Instead of predicting the future, I choose to evaluate probabilities. A friend offered Kim and I the opportunity to buy a piece of land for $1 million.  He said, “In two years the property will be worth $2.5 million.”  If this were the year 2002, I would have jumped all over the deal.  But it is the year 2005.  The question I ask myself is, “What is the probability that the boom will go on for two to three more years?”  What is the probability that the property will more than double in two to three years?”  My answer is “slim to none.” Your answer may be different.  Can I be wrong?  The answer is, “Yes I can be wrong.  The boom may go on for ten more years and that $1 million dollar piece of land could be worth $10 million maybe $15 million.”  Yet at this late stage of the market, I will only invest in properties that return a cash-on-cash return on a monthly basis.  That is why I like my Oregon and Arizona deals. In the short term, I may not make as much money as the land deal, but they should return a positive cash flow regardless if the market goes up or down. After the crash, I may change my strategy. 

WARREN BUFFET 

Even Warren Buffet is seeking safer investments.  Recently he announced he was investing in utility companies... not for capital gains but for capital safety.  Buffet's two most important rules for investing are: 

         Rule #1.  Don’t lose money.

         Rule #2.  Don’t forget rule number one.

THE GREATER FOOL 

In the world of investing, there is what is known as The Greater Fool Strategy of Investing.  When someone buys a property to flip, or a share of stock to sell at a higher price, that is the Greater Fool Strategy in action.  In simpler terms, a person buys a property or a share of stock not to own but in the hopes that there is a fool greater than them.  The problem is, when the bust comes, and it will come, many people who were buying for a fool greater than them, may find out that they were the last fool in line. 

A FINAL WORD FROM THE ECONOMIST 

Another interesting comment from The Economist went, “Another sobering warning is that after British house prices fell in the early 1990s, it took at least a decade before they returned to their previous peak.” I’ve made a lot of money in the last few years in real estate, but I believe it is time to move on and invest in other assets. And that is why I am moving more of my money to gold, silver, oil, and gas. While I love real estate as an investment, and will continue to always invest in real estate, this is not the time to let love blind me to reality - the reality that all booms eventually bust. 

So, good luck to you.  Please don’t get caught in a flip that flops or use your house as an ATM machine, borrowing out the new found and inflated equity in your property.  That is what I am most concerned about and why I write my letters of caution at this time in the over-heated real estate market.  Always remember the line from the song that goes, "Fools rush in where wise men fear to tread."  Now is not the time to be a fool rushing into a party that is almost ending.  At least, it is my opinion that it is ending.  I could be wrong.  But even if I am wrong, I still plan on making a lot of money.  To me, it’s just a fun game played with real money.  So have fun, study hard, get rich and live free.