August 07, 2022
Listen to Podcast Episode:
On today’s episode, Suze talks about why our country's issues with China and Russia are among the factors contributing to inflation, and why a recession may be on the horizon.
Suze: August 7th, 2022. Good morning everybody and welcome to Suze School on the Women & Money podcast and everybody smart enough to listen.
Suze: Suze School today is going to be a look back in history, what's going on today, and why I've said to all of you, I'm a little bit concerned. And I'm concerned because so many of you are writing me and you know what you're saying to me, you are saying
Suze: that the market has hit the bottom and we are in a bull market now. It's a V shaped recovery. Matt, I think that's you that writes in and says we are in a V shaped recovery. And it's going straight up from here.
Suze: I don't think so.
Suze: And whether we're in recession or not in recession, or we're going into recession, we have to look at this world very, very differently than we've ever looked at it before.
Suze: So even looking back at what happened in the past and what the past tells us about this market and what all these analysts are saying in the charts and this and that, I just want us to sit down,
Suze: relax, and take a look at really what's happening in this world, and how does that affect each and every one of us in my opinion. Because this is so much more than just the stock market. And it's your 401K, or retirement plans, or stock portfolio going up.
Suze: It’s really we gonna have enough gas to put in our cars and to make everything that needs to be made with energy? Are we going to have enough food in the shelves to eat? Is it possible that we could have a worldwide shortage on food? Is it possible that we're not going to have the chips, and the right materials to put into our cars, and create electric cars and all these other things
Suze: that affect each and every one of us. And inflation of course affects each and every one of us. And I get that everybody is predicting that inflation is going down. Look at the price of everything, look at the price of gasoline. Well, why is gasoline going down?
Suze: We're going to have to talk about that today. Also. I am going to go briefly into why I said on the other day in a podcast, I don't remember when I said it, but it was recently, which is why if you own XLE which is the ETF for the oil industry which has done very well for the majority of you, even though it is down from its high at 90 something,
Suze: many of you are writing but Suze, I still have a 35% profit in it. Are you sure you want me to get out of it or whatever it is. Why I'm suggesting that just maybe given what's happening with oil, that if you want to stay in that industry, that Devon or Pioneer might be a better place for you to be and I will explain why on that as well. So
Suze: are you ready? Are you sitting down?
Suze: Are you walking with me on a walk?
Suze: It's funny, my niece Alexis the other day said she was listening to Thursday's podcast, and she said something that I was not feisty, but I was like yeah! Coming at people. And I said why did you say that? And she said because you said to somebody, it was a stupid question.
Suze: And if I said it was a stupid question, I don't mean it was a stupid question. I mean because none of your questions are stupid, it was a stupid thing to do. Just that simple. But I'll try not to be quite as feisty, because you just also love Miss. Travis's sweetness and naivete on some level, and a heart that's bigger than the world has ever seen.
Suze: But it's a really wonderful contrast because you know, not everything happens out of sweetness. Everything happens when it's grounded in the truth. The truth of what's real. And I don't have a filter. I just say what I think at the moment that I'm thinking it, which is what makes me Suze Orman. So for now, let's go back in time,
Suze: and think about why did we have such low inflation for so long. Why were all of you able to enjoy going into Walmart, and all these stores that was selling everything at such lower prices,
Suze: so even though your wages weren't keeping up with things, the things that you were buying were going down in cost, so you were able to maintain your same level of living. Why was that true?
Suze: Really, it's for three reasons. And the three reasons are, number one immigrant labor.
Suze: We could produce things here in the United States for so little like your food supplies and things, because we had immigrant labor that we were paying such insulting wages to, it's not even funny, but because of that labor, it kept many areas of the economy down.
Suze: China played a pivotal role for years why inflation was so low. Because in China, they could produce for a fraction of what we could hear all these goods that we wanted to buy.
Suze: So even though again, I'm going to repeat, your wages were not going up during this time a few years ago,
Suze: the cost of goods from China were costing you less, so all was great. Everything stayed on that equal basis. You felt like you were living a life that you could afford, everything was good. Obviously not for everybody, but for the majority of you, you were able to live the life you wanted to live.
Suze: Next. Russia.
Suze: Russia was selling gas for really, really cheap to Germany and Europe. Now, how does that affect you? I'll tell you that in a second.
Suze: Because they were able to sell things to Germany and Europe for so cheap, gas,
Suze: what happened was that Europe and Germany was able to manufacture stuff and do things and export them to us really for pennies on the dollar. So it kept everything in sync. Europe, Germany, they were great. China was great. Over here because of immigrant labor. We were great.
Suze: So that was immigrants, Russia and China.
Suze: And now, we are in an economic war almost with all three of those sectors.
Suze: China is so aggravated with us right now, Russia because of the sanctions that we have put on them, and the money and the weapons that are being sent to Ukraine, Russia is weaponizing things. Because Germany and Europe has also joined in, they're not going to be selling gas anymore to Europe.
Suze: And what that's gonna do, is that's gonna put Europe, Germany and everybody, in a total recession. And that of course is going to absolutely affect us. So we are in a whole different type of war right now everybody.
Suze: We're in an economic war with the three entities, whether it's immigrants, Russia, China that were holding everything down, inflation down here in the United States because of how they were operating,
Suze: we have now turned them, especially Russia and China, into our enemies.
Suze: And as enemies, they don't fight anymore really with weapons of destruction. They're not really looking even though they threaten it to drop a bomb or do whatever. They now are going to war
Suze: with commodities and holding supplies that we need. And when they hold the things that we need from them, because we became so dependent on them, all that affects inflation.
Suze: So we really need to pay attention. To how these three great powers, China Russia, and the United States now, they resolve their intense disagreements with each other. And if you ask me, it doesn't look like the United States is able to do that. Russia and China are forming a bond,
Suze: so they're getting stronger as two entities, and it just seems like the United States is not part of that.
Suze: Has inflation peaked? Inflation that affects absolutely everything,
Suze: only time will tell. But I do think that inflation is here to stay for quite a while now. If inflation is still above 8% at the year end, what does that mean? What that means is, and I personally think it will be above 8% at the year end,
Suze: it means that the Feds are going to have to continue to raise the Fed funds rate. Because you are still out there, and absolutely still spending.
Suze: They haven't been able to crush the demand in the way that they really want to. So if at the end of the year inflation is still at 8%,
Suze: then it's very possible the Feds are going to have to raise interest rates even more than they are projecting
Suze: that they are going to have to do. Next. What concerns me.
Suze: The yield curve.
Suze: Now the yield curve has to do with Treasury notes. Now, I've told all of you in the past, especially when yields were up, buy a two-year Treasury note. Buy a five year Treasury note. Lock in those rates when they were in the 3% area.
Suze: Now, normally you would expect to get less of a yield for a two-year Treasury note, than you would a 10-year Treasury note. And the reason that is, is because when you lock up your money for a longer period, and 10 years is obviously longer than two years,
Suze: you would be paid more for that.
Suze: And therefore, a normal yield curve would be the shorter the maturity of the Treasury,
Suze: the less of an interest rate that you would get versus the longer term of a Treasury.
Suze: And usually they measure that yield curve, and it should look like it's going up like a half of a U. It starts down low, and it goes up longer over a period of time. Does that make sense to you? I hope it does.
Suze: The yield curve always wants to look like that U, so to speak. The longer you go out, the higher the interest rates. When that yield curve inverts,
Suze: and you get a higher interest rate for shorter term maturities than you do longer term,
Suze: traditionally that has always been an indication that recession is on its way or it's already here. And we have had an inverted yield curve now for quite a bit of time.
Suze: As I'm recording this, the two-year Treasury note is paying 3.19%. Great rate everybody. But the 10 year is only paying 2.77%. Now, I could give you all the different rates of all the different maturities. But normally we look at the two-year versus the 10-year.
Suze: That is a big, big difference. A big difference between the two of them.
Suze: So when that difference is so large,
Suze: that's an indicator that a recession is absolutely a probability if it stays like this. Now, I get that everybody is saying we're not going to have a recession. Everybody is still spending money, the employment is up there, everybody has a job. Listen.
Suze: We can't judge the past
Suze: as an indicator of what is a recession now. My main concern, even more than the yield curve, is what I started this podcast with, which is what is going to happen with Russia, China and the United States. We have never been so dependent on Russia and China as we are now.
Suze: We gave up our independence. We stopped pumping as much oil, we stopped manufacturing as many goods that we sell here.
Suze: So we lost our independence, and now are totally dependent on two entities that really don't like us very much.
Suze: And that concerns me.
Suze: So again, the future in my opinion is still in question.
Suze: The real question is, what is it going to take to crush inflation? To crush demand?
Suze: So that's just something that we really need to think about.
Suze: Now. Let's talk a little bit about energy. Because you know I've been talking about energy, and energy ETFs, as well as individual stocks really since 2020 in March.
Suze: And, we really have to understand what has happened here, and why are gas prices going down, and what does that mean for us in the future.
Suze: So what happened to energy really, was the war in Ukraine.
Suze: That really sent energy prices over the top. Remember, when we were in the pandemic, energy, in March of 2020, they had to pay somebody $31 a barrel to take energy away. It was negative. Everybody was like, nobody's using cars, nobody's flying on airplanes, nobody's traveling, so therefore the price of energy went down, and down, and down.
Suze: And when something goes down and down and down like that, that is the time to buy, which is why I told all of you to buy X. L. E. To buy it. Because it was the ETF that you could diversify with, to absolutely do what? Get a very nice dividend at the time and participate if oil was ever to go up. So that's what happened.
Suze: But then energy prices started to go up
Suze: as everything started to return to normal, so to speak. People started to travel, do things again, and they really skyrocketed when Ukraine and Russia went to war. That sent energy prices over the top.
Suze: And all the ETFs and stocks that I told you to buy, skyrocketed. XLE went all the way up into the nineties and all of you, I'm sure, we're so happy and you loved what was going on.
Suze: there we were. But what happened after that?
Suze: Is that energy prices started to decline.
Suze: Now, why did they start to decline? Because that's a really important thing to think about. They decline to like $90 a barrel.
Suze: And I know in our heads we all think energy is really low. It's said that energy prices are going to go down to $80, $85 a barrel. Some people say it will go down to $60 a barrel.
Suze: To put things in perspective, $80 or $90 a barrel is still incredibly high. It's lower than it was, but it's still off the charts high. Because most of the companies make money when oil can go as low as $50 a barrel, and they're still making money.
Suze: So at $80 or $90 a barrel, they are making money hand over fist. Are you all following me?
Suze: The problem is, here in the United States, the production, the drilling for oil is relatively flat.
Suze: But the demand eventually is absolutely going to increase.
Suze: It's going to increase again with China, it's going to increase as things continue to open up.
Suze: Even though I know nobody believes that it's going to increase, it is. And we do not have the supply for it. Now the Feds, are really trying to crush the demand of oil. They want you not to drive. They want you not to travel. They want to bring down the price of a gallon of gasoline.
Suze: Now what's interesting, is that if you've noticed, the price of gas has come down.
Suze: And the question is, why has the price of gas come down? And in my opinion, the price of gas is actually come down because the government is releasing oil from the Strategic Petroleum Reserve.
Suze: But they only have so much oil in reserve.
Suze: So eventually, they are going to have to replace that reserve by buying more oil from companies. Are we all following me?
Suze: Now, one more thing, Okay. Europe is absolutely in trouble. And they are in trouble because Russia has shut off gas going to them, because Europe and Germany joined in with the United States, and Russia did not like that. So, what are they doing? They are weaponizing, rather than bombing them, they're weaponizing a commodity.
Suze: And so absolutely, you're going to see Europe go into a recession. And when they go into a recession, that also affects us. Okay. So are you following me with everything? Or have I jumped around too much? But let me go back to the reserve for one second because the government reserve is limited,
Suze: and more demand is absolutely going to be in the future.
Suze: The government now is trying to negotiate with companies as to buying oil from them at a specific price and that will mean that oil companies will produce because they know they're not going to lose money. Why? Because the government will buy it for them at a specific price. Now. Where is all this going in regards to you?
Suze: The reason why recently I wanted you to switch, from possibly XLE to either Devon or Pioneer symbol PXD, is because remember in the past, I talked to all of you about dividends.
Suze: And if these markets do start to go up down, up down, which is what I think is going to happen. I do not think we are straight up from here. Maybe we're up for another two weeks or three weeks or whatever it may be.
Suze: Are you in the right area of things that are going up, because not everything is going up, which is why I wanted you in index funds like the Vanguard Total Stock Market index fund,
Suze: so that you absolutely could partake no matter what was happening.
Suze: But the question is, is the market going to go straight up from here and continue to go up for the next few years? I would bet my bottom dollar that it does not.
Suze: Do I think that it could obviously go up, like I said a few minutes ago for the next month or so? Yes, but I also think that there will come a time when it turns around and it goes back down. Especially if we have not contained inflation.
Suze: Especially if the energy starts to go into demand and we don't have enough.
Suze: Especially if food becomes a shortage. I think that will start to affect everything where people stop spending,
Suze: earnings of companies start to go down, and here the market goes down again. Time will tell.
Suze: The energy crisis and the energy situation is something we need to think about. Now the reason why I wanted many of you possibly to switch from XLE,
Suze: and either take your profit, because I do think it might continue down or stay right around here, is at this price which is $73 a share, it's only paying you a 3.28% dividend on your money.
Suze: The two energy stocks that I like, and may very well continue down, but I like them because of their dividends. And we have to look for places where we can put money, and regardless of the action of the stock, whether it goes up or down, we still get a good income from that stock.
Suze: Those two stocks right now in my opinion, are Devon and Pioneer.
Suze: You know Devon recently reported, and they have $2.1 billion dollars in free cash flow.
Suze: They are really rich with cash. In fact, that is more cash than they've had in their 51-year history.
Suze: Now. Currently Devon is paying a 10% dividend. Now listen to me closely. A lot of you will go on, and you'll look at the dividend that Devon is paying. And it won't be anywhere near 10%.
Suze: That is because they're giving you a fixed dividend, and a variable dividend. So every quarter, they give you money that they want to give you. And it's called a variable dividend. This month, the dividend is a dollar 55 for every share that you own. If you bought dividend around now, which is about 56, $57 a share,
Suze: that's over a 10% dividend. Remember dividends are paid quarterly,
Suze: so you would take that dollar 55 times it by four, last time it was a dollar 27 dividend. So they changed it all the time, but it's still seriously high. Now. To participate in that dividend, you have to be owner of record before September, 9th 2022 because every stock has what's called an ex dividend.
Suze: If you don't buy it by a specific time, it will trade without the dividend. And that date is September 9, 2022. So if any of you want to participate in that dividend and see what happens, you need to own it before September 9th.
Suze: So next we have Pioneer. Symbol is PXD. They currently have the highest dividend in the entire Standard and Poor's index, and that is a 15% dividend.
Suze: Also, even if oil prices decline,
Suze: Pioneer has 20 years’ worth of inventory. However, if you want to participate in the dividend for Pioneer, which is going to be $8.57 a share, and it's currently trading at $217 a share, maybe it will go down even more before the ex-dividend date, but you have to own it before September 2nd, 2022.
Suze: So the reason that I wanted many of you to possibly look at a change, was to increase your dividend yield. To get more cash for your holding. It wasn't necessarily for it to go from 50 to $100 a share. I am not looking at this as something where the stock goes up. I'm looking at this as two companies that have tremendous cash reserves, are paying high cash dividends,
Suze: and at least our pain you income while you are seeing what happens. Because the truth of the matter is especially in many situations, what difference does it make if the stock is at 30 versus 90 versus whatever, as long as you are getting a great dividend? Would you sell it anyway?
Suze: No. Because you're looking for the dividend. That was the reason behind my suggestion of XLE, that's only paying a 3.28% dividend right now, not a bad dividend, but nowhere near Devon or Pioneer.
Suze: Up to you. You may decide to sell and not want to be an oil anymore. But that was the reason behind that.
Suze: I know that was a lot for you to listen to. And it probably sounds really depressing, but it's not. And it doesn't have to be, if you just keep a realistic view on what maybe is happening out there.
Suze: And so you have your 12 month emergency fund, you stay out of debt. You keep dollar cost averaging in areas of the market that you want to be in or with the Vanguard Total Stock Market Index fund. In fact, next Sunday
Suze: I'm going to do an entire Suze School on dollar cost averaging and what would have happened to you if you had purchased the Vanguard Total Stock Market index fund on the first of every month, starting January 2020. And what that looks like. So we can see how dollar cost averaging really works. But if you have a realistic view,
Suze: of what's going on in this world, and you live below your means but within your needs, we can make the best out of any situation. I know you can. So until next Thursday, so Miss. Travis joins us again. There's really only one thing that I want you to remember when it comes to your money and that's for you to be safe, strong, secure and smart. Alright, see you then, Bye bye.
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