November 05, 2023
Are you taking your money for granted? Suze explains how when the yield curve is inverted, it could be a sign of recession. Today’s lesson, along with an incredible announcement about new opportunities with Alliant Credit Union may help you secure your money for the future.
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Welcome everybody to the Women and Money podcast as well as everybody smart enough to listen, Suze O here and today is Suze School. You know what else today is today happens to be daylight savings time and you know, I live my life and I think I've told you this before by saying that I always need to see the sunrise and the sunset. So especially during daylight savings time, at least for a while, that's something that actually is easier to do in terms of the sunrise. And it's something that maybe all of you should start to participate in as well.
Now, maybe you're sitting there wondering why Suze, why do I need to see the sunrise and the sunset?
And that is because in life, we should never ever take anything for granted.
We should never take it for granted that the sun is going to rise and the sun is going to set. We should never take for granted any of Mother Nature's Marvels. We should not take for granted our health. We should not take for granted our freedom.
We should not take for granted our jobs and that we're always gonna be able to work and make money. So therefore, you don't need to save money. We should never take our loved ones for granted or our money and what we do with it. So to that end, it's important for you to not take for granted that money just will be money and you can do this with it and do that with it and not understanding why you are doing that, which you need to do with money.
So before I ask you to take out your Suze notebooks, I understand very well that many of you have been writing me and you want to know about I bonds. Should you continue to invest in I bonds since they just gave the new interest rate for them? On November 1st, should you sell bonds that you already have to buy new ones? So many questions. So on Thursday, for Ask KT and Suze anything, we will be answering all your questions on I bonds.
But for now, take out your Suze notebooks because I have a feeling that you may need them.
You know, over the past many, many podcasts, I've tried to teach you about what a normal yield rate curve is and an inverted yield rate curve. And very simply, it's normally you are paid for risk and one of the elements of risk is time, the longer that you are willing to lend any entity, whether it be a government, a corporation, your friend, whatever it may be, the longer the term of the loan, usually the more risk you are taking and you are taking more of a risk because anything can happen from the time that you lend an entity money and the time that they have to pay you your principal back, I mean, I've had that happen to me, I lent my cousin money and he was doing great. He was paying it back and then he got into trouble and then he couldn't pay me back any more.
So I took a risk and truthfully the risk was, I never got the majority of my money back. So when you invest in short periods, there's less risk because you usually have the ability to get your money back.
The longer out you go, the more risk there is. So let's just talk about treasuries right now and a treasury is where you are lending the government money so that they can pay their bills and do other things with it.
And the longer out you go in a normal situation, the more of an interest rate you will be paid again, a normal yield rate curve is that bills which are very short term pay you less than notes.
Notes are usually from two years to 10 years. They pay you more than bills, but they pay you less normally than bonds that are 20, 30 year bonds. What started to happen a little while ago, the yield rate curve inverted where you were getting more for treasury bills than you were for treasury notes as well as treasury bonds. The worst had it got. Actually, this inversion happened around July 3rd of this year and it was as bad as it had gotten back in 1981. And that's a long time ago. But around July 3rd, you could have done a two year Treasury Note for 4.9% but a 10 year treasury note was at 3.8%. So there was essentially a 1.1% difference that's also known as 109 basis points. All right. So 109 basis points equates to about a 1.1% difference. Now, what you need to understand is that for some reason, the yield curve is really based on the difference between the two year note and the 10 year note.
If the 10 year note starts to go up. Usually that's what mortgage rates are based on mortgage rates are not based on what the fed funds are doing. They're based on what's happening with the 10 year note. And I am sure that you will see because the 10 year note now has started to come down, that mortgage rates will not be in the 8% area anymore. They will now be back in the 7% area. So truthfully when looking at interest rates, I want you to pay attention to the two year Treasury note versus the 10 year Treasury note.
So in July, we had what was called a major inverted yield curve. All right, because you were being paid 1% more for a two year note than a 10 year note.
Now, what you have to understand when we have an inverted yield curve, everybody freaks out and they freak out because normally when the yield curve is inverted, that means it is a recessionary signal that usually recession follows. However, most people truly don't understand how the yield curve in regards to a recession actually works. It's not like we get an inverted yield curve and immediately a recession happens.
It's usually 12 to 18 months, maybe two years after the beginning of the inverted yield curve.
Now, really what happens and this is what is happening right now is when the yield curve starts to flatten out, not where it's really inverted dramatically anymore, it starts to flatten out that is actually after an inverted yield curve more dangerous than when it's really being inverted.
And the reason is there has never been a time when the inverted yield curve flattened out as it is right now. It's flattening out where maybe a year or so from now or six months or eight months from now. A recession hasn't happened.
You cannot take it for granted that just because the feds did not raise interest rates last week, interest rates are possibly starting to come down. Inflation. The feds are indicating that inflation and their moves are taking hold. So they're kind of happy with that, which is why by the way, the stock market went up so much last week, you cannot take it for granted that these signs are absolute great signs for you.
If you now look at the two year and the 10 year notes, you could do a two year note for approximately 4.85% but a 10 year note for about 4.58%. So we're actually closer. That's pretty flat and therefore things could possibly start to become more recessionary in six or eight months. So you need to prepare for that.
So what do I think about interest rates? I think what you're going to see happen with interest rates is that interest rates are going to start to come down here, but not for long,
they will come down for a while. We'll have to see what they tell us when they do. But after they have come down,
I don't think they're gonna stay down.
I think they will then turn around and go right back up again. But I don't know when that will be, you know, when I told all of you a little bit ago to start dipping your toes into the 30 year bond, especially if it was over 5% and it hit five per cent twice over that since I've told you thatit's now approximately at 4.7%.
So what's interesting about that? Is that many of you hear me say a 30 year bond and your response to that is Suze, I'm gonna be dead in 30 years. I'm not gonna hold that for 30 years. I have never said to you that if you buy a 20 or 30 year bond that I expect you to keep it forever,
I told you that if interest rates start to come down, which essentially they have right now on the 30 year bond anyway, that you will make good money. Now, if all of you who took advantage of the 30 year bond, once it was at 5% or a little over, you would see that if you looked at your balance right now, you are approximately up 3% on your money in less than a month and many of you are making three or 4% on your money. If you hold it for an entire year.
So there will also come a time when you will sell that 30 year bond
and maybe at that point, just wait, go into shorter term. We don't know yet, go into longer term later on. But we will deal with this economy as it happens.
This is very different than a stock market where you buy a stock. And if it's good stock, you're probably gonna hold it for a long, long time when it comes to a long term bond. And these types of interest rate cycles where it is not straight down from here and gonna stay down like it was from 1981 till recently.
This is where it will be higher for longer, but it will come down and then go back up. So we will take advantage of it when it makes sense to do so. So what should you be doing right now if you happen to have cash?
All right, I want you to listen to me last week, KT and I had a long talk with Dennis Devine.
And if you don't know him is the CEO of Alliant Credit Union. And we should all congratulate him because he along with 10 other CEOs got the CEO of the Year award for many reasons, but he is an incredible CEO because he really, really cares about you.
And the reason that we had this conversation with him was he had a question that he wanted to ask me and the question was very interesting. He said to me, Suze, what is it that your listeners really want at this period of time?
And I said, well, truthfully, Denis, in my opinion, they want to be able to invest their money, know that it's a good interest rate. They don't want to go out necessarily very long. Maybe they don't want to do my strategy of 30 year or 20 year bonds. They just wanna know that they can invest their money, get the highest rate possible and have access to it possibly within a two year period of time and not have to keep reinvesting it and worried about every three months. If it matures, will interest rates still be the same. Will they go down? They just want safety and they want security period. That's what I think they want.
So he said, what does that look like for you? And I said, well, you know, Denis, I've been telling everybody that I would go out longer.
I would go out 18 months, I would go out two years. I would lock up the money, especially if we're talking about a certificate of deposit.
I said, but you have to be more competitive than a two year treasury note. You just have to be Dennis.
And he listened and I said you need to be more competitive than almost anybody out there as well.
So he came back and he said, ok, try this one on for size Suzie.
He said, what if we did an 18 month certificate of deposit for 5.30% for under 75,000 and for those who can deposit 75,000 or more, we give them 5.35%.
And I said, well, that would be pretty great. Dennis, given that the two year treasury note is only at 4.8% right around there.
That would be really great because that's really three quarters of a percent, maybe a percent more depending when people buy it. He said, ok, done.
I said, are you kidding? He said, no, I'm not kidding. Done. You can tell everybody Sunday, which is today that they can do that. So two things I want to say to you, ok, if you have never deposited money with Alliant Credit Union, all of you are eligible to do. So you don't have to be a member of any organization, do anything. You just would go to my alliant dot com. You would sign up and there's a way for every one of you to be a member. And that's simply by joining foster to success for foster kids. And Alliant Credit Union pays that nonprofit $5 for you. So you're doing good by helping yourself and you're a member of Alliant Credit Union for new members of Alliant Credit Union. The 18 month is at 5.30.
Again, 5.35% for those of you for $75,000 or more for those of you. However, and listen to me closely, you're already a member of Alliant Credit Union. Maybe you've already bought short term CDs or whatever it is there for you. You get to choose if you want an 18 month, a 19 month, a 20 month, a 21 month, a 22 month or 23 month certificate of deposit. This is only for people who are already members of Alliant Credit Union. So you could, if you wanted to, you could put $1000 in each one of those maturities and get your 5.30% or again, 5.35. If in fact, you put in $75,000 or more or you could just take advantage and do a 23 month one, which is almost identical obviously to a two year treasury in terms of maturity and you would be getting and locking in 5.30 or 5.35 for that entire time, which I think is a good period of time.
That's a lot different than the 4.8 or 4.7 or whatever treasuries happen to be at.
Now. One of the reasons that interest rates in treasuries are starting to go down.
And if you look at the trajectory of treasuries and what has been happening out there and why they are going down, I think it is very possible that you could see the 10 year go to 4.5 or 4.3.
And so, will it go up again or not? I don't know.
However, that is why I think it's kind of important that if you want a certificate of deposit, if you want it at Alliant Credit Union, if you want it with a CEO, that really cares what CEO asks the question. What is it that your listeners want and then gives it to me. Are you kidding me? Anyway, I would go to my alliant dot com and that is what I would do or go into your account that you already have there and take advantage of this because truthfully given that it's one of the highest interest rates around right now,
I don't know how long that will keep. It's important that you really understand what's happening in the economy, why it's happening and what you should do about it. So, since I have a few minutes left in this podcast, you also may be wondering why Suze, because I want you to understand how things work.
Why Suze are interest rates coming down? What are the reasons that the markets right now are going up?
It's very, very simple is that the main reason that the yield on the US Treasury note fell on Friday was after the jobs report came up. It showed that the labor market was cooling.
It also showed that non-farm payrolls, meaning people who don't work on the farms, it grew less than expected. The unemployment rate edged a little bit higher and wages, the wages that we have to pay people just rose slightly but less than what was forecasted.
And all of that reinforced the fed in thinking that they might be done with rate hikes. So when that happened, the benchmark for everything, which is what, what is it, everybody, it is The 10 year Treasury note, it fell about 30 basis points that week.
Now, if it fell 30 basis points, what does that mean? What is a basis point? You have to know these things when you listen to what's happening? If 100 basis points is 1% 30 basis points is like 0.31% but it fell 30 basis points and it fell to a level that the 10 year Treasury Note had not seen since last September. And it's well below. Now, the 2007 highs of 5% and less than forecasted, reinforcing bets that the fed is done with rate hikes. So all of those things plus other stuff going on says that we have to seriously pay attention to what interest rates are going to do. And so when I look at everything and I look at history and I look that right now, we have essentially a flat yield curve.
We can't take it for granted that we're not going to be in a recession because I still think months from now it's pretty much pointing that way. So you have to not take anything for granted. You have to be on top of your money. You have to know where it's invested, you have to take advantage of certain things. And one thing that is ok for you to be taking advantage of is the opportunities that the stock market is presenting when the stock market goes down.
Because if you listen just last week to some of the stocks that I said as well as some of the stocks that I said on the CNBC segment that I did. Some of those stocks are already up 20% or more.
So there's opportunities everywhere but you have to know where to go, what to do and to always see the sun rise and the sun set.
So for now, there's only one thing that I want you to say every single day and that is today. Wherever I go,
I will create a more peaceful, joyful and loving world and I promise you if you do that, you will be unstoppable.