Financial guru Suze Orman thinks that most consumers are, or soon will be, facing dire straits, in an environment of higher interest rates, higher inflation and elevated volatility in stocks and bonds.
“ ‘Most of America today has absolutely no money, if you look at it.’”
Orman’s comments, made on CNBC on Wednesday afternoon, came as SecureSave, an emergency-savings account company that she co-founded, has published a survey that finds that 67% of workers cannot afford to pay for an emergency $400 expense and that 74% of Americans are living paycheck to paycheck.
Kristi Rodriguez, senior vice president of the Nationwide Retirement Institute, said last fall that ”Americans’ monthly expenses have outpaced their personal income growth.
“Households are spending more, not as much because they want to, but because they have to with increased costs for essential items,” she was quoted as saying by MarketWatch’s Quentin Fottrell.
Check out: MarketWatch’s snapshot of the market
Indeed, personal savings rates have plunged, down around 2.4% from a pandemic peak of 33%, according to the most recent data available from the U.S. Bureau of Economic Analysis.
U.S. Bureau of Economic Analysis
Orman explained the fall in savings this way on CNBC’s “Fast Money”:
They were so flush with cash ’cause during the pandemic they had no place to spend the money that unemployment was giving them, extra unemployment, all kinds of stimulus checks. They didn’t have to pay their mortgage, their rent, their student-loan payment. And here we are now, a year or two later, interest rates are through the roof, for most of them…rent they can’t afford, they can’t buy a house, they can’t buy eggs, they can’t buy a car.
She speculated that “soon they’ll be using their credit cards, not being able to pay it,” she said.
Orman also noted that the repossession of cars, where borrowers have defaulted on auto loans, are surging to levels not seen in four years.
According to rating agency Fitch, for the lowest-income consumers, the rate of loan defaults now exceeds 2019’s numbers. Data from Cox Automotive shows that delinquencies for subprime borrowers, those viewed as the least creditworthy, were at 7.11% last month, marking the highest rate of delinquencies since 2006.
Orman’s comments about the fiscal instability of Americans are at odds with some other experts who say the consumer looks healthy despite tumult in the S&P 500
SPX,
Dow Jones Industrial Average
DJIA,
Nasdaq Composite Index
COMP,
and the perceived safety of Treasury bonds, notably the benchmark 10-year Treasury
TMUBMUSD10Y,
Earlier this month, JPMorgan Chase CEO Jamie Dimon said Americans’ “balance sheets are in good shape,” adding that they are spending 10% more than the pre-COVID period. That said, Dimon is predicting a mild recession for America, as a base case.
So what’s Orman buying in the face of the headwinds she is anticipating?
She says she is avoiding tech stocks and is 80% in cash, with the rest of her funds sitting in short-term Treasury months, or T-bills, of no longer than six-months
TMUBMUSD06M,
which are currently yielding 4.8%.
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