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October 8th, 2008
11:42 PM ET

Suze Orman on your fears

Editor's note: Tonight on AC360° Suze Orman returned to discuss the tumbling financial markets and answered your questions.  You can watch the segment here. Here is what she had to say:

Anderson Cooper: A lot of questions, a lot submitted on the AC360° blog. There is down right fear, panic. Is that counterproductive?

Suze Orman: It is not counterproductive, it's real. It's how people feel and the markets are made up of how people feel. They buy or they sell based on their emotions, Anderson. It's how it has always been. When Ali does this thing with the drugs, I was talking to you before we went on air, this is what is happening. People feel they need medication because they are panicking.

It's as if the economy right now is in the I.C.U. unit of a hospital. We are in intensive care and they are throwing everything type of medication at us to cure what is going on. They are panicking because why? Nothing is working. They tried this, it didn't work. They tried that medication, it didn't work. They are running out of prescriptions to give it. We are going to be in the I.C.U. unit for a while. Eventually, I don't know when that will be, six months, a year, year and a half, we will get out, we’ll be in the hospital then. We'll stay in the hospital for about a year or two. After another year or two we will end up in rehab and then we'll be okay. This is a long stretch. People have to stop panicking. This is here to stay, if you ask me, for a long time.

Anderson: Panic produces paralysis. People need action. How low do you think the markets can go? In terms of stock market, the credit markets matter, but you talked about the 8,000 range for the stock market.

Suze: 8,200, 8,000. Hopefully that is as low as it goes. But I do think we are about 1,000 points from where the bottom should be.

Anderson: We have a couple of questions from viewers. Lorie Ann in California asked:

If it is a possibility everything we throw at the crisis doesn't work, what will that result look like, bread lines or something less frightening?

Suze: I’m sorry to say that it could look like bread lines. I know that is not really a great thing for me to say. But I want you to think about the reality of this, for those of you who have credit card debt, you are losing your home because you are behind on your payments, you can't make your car payment, you work in an industry possibly that you are going to lose a job in, you have absolutely no money and this keeps going on and you can't get another job what are you going to do? It is very, very possible you will start to see things not where there are bread lines like we saw and nobody having – but a lot of people out on the streets. People calling into my show that are living in their car because they don't know what else to do.

Anderson: A lot of people losing their jobs. Lilibeth in Washington:

You say for those with ten or 20 years before retirement to ride this out. I cringe. At what point do you say enough is enough? When the DOW hits 8500, 8000, when?

Suze: No, in fact, let's say you are you have ten, 20, 30 years until you need your money, the biggest mistake you will make, please listen to me, everybody, the biggest mistake you will make if you stop contributing to your retirement accounts now. If you have been putting money in your 401(k)s, now is not the time to stop. You want to see, if it continues to go down you want to see your contributions continue. Because, again, as I’ve said, the lower the market goes, the lower your shares go in your 401(k).

Anderson: Even if it is going down every month.

Suze: If they make a stoppage and freeze everything they have to get out of the market. Otherwise they are not dollar cost averaging down, Anderson and they don't accumulate more shares and there is no way to make the money back when they come back up.

Anderson: Suze Orman, thanks so much, as always.


Filed under: 360° Radar • Economy • Suze Orman
soundoff (35 Responses)
  1. Carole C

    I have listened to some of the Congressional hearings with executives from AIG who kept saying "this was unforeseen". I'm also an accountant with knowledge of generally accepted accounting principles and financial reporting standards. I 'm concerned that standards will be suspended at will when the rules don't favor some business interests. A few important reasons for having standards in place is for purposes of analysis, comparisons and common understanding of financial statement elements, accounting treatments, and presentation. I don't think it took a rocket scientist to see what was going to eventually happen.

    I joined a 401K plan with my present employer for 6 years. As a State employee, I am required to contribute 3% and my employer contributes 7%. At the time I was 45 years old and being somewhat risk adverse, I split the contributions with 40% going into an annuity and the remaining 60% in a few different mutual funds. The vesting period is 13 months. Late last year I started following the sub-prime mortgage situation. In latter January 2008, I felt nervous about how the economy appeared to be unfolding. I moved all my contributions to the mutual funds in my 401K to a money market account. I plan to retire in 12 years. Should I start new contributions going into mutual funds again and leave what's in the money market until the market looks like it is near the bottom?

    Thank you.

    October 9, 2008 at 8:30 pm |
  2. msmillion

    I am in the same boat as Harry S. All along I have been investing with the idea of retiring at 62 (2 years from now). Then Bush took office, I saw very slow growth in my investments and I said, "No problem, I can work until I am 65." Now I see myself working until I am 70+ and that idea makes me furious. I feel the same violations by this corporate irresponsibility as I think I would if someone broke into my house and stole everything. It's not that I won't survive; I'm not afraid of that I have my health and a great job. It's that decisions about my future are no longer mine to make. Like most victims, I feel this need to be vindicated and I don't believe this will happen. What about it? Do you see any of these executives being prosecuted or held accountable in anyway?

    October 9, 2008 at 8:03 pm |
  3. Steven Hanzman

    Suze,

    My wife and I watch your show and we have seen you on many shows during this economic issue. The one thing that scares me the most is everyone is saying the credit market is frozen and that is what is causing this issue. Americans are not spending and companies can not get credit to do busniess.

    My concern here and I was hoping to get your take on this is as follows:

    What happens when this so called credit freeze is over and this bailout hits the market. Everyone will get credit again and do the same things over that got us here in the first place "living beyone their means"!

    Do we not have to go back to the days of when the American Dream was to save 20% and then buy your house. Put items on lay away until you paid them off to get them? We have to stop the lax regulation on credit card companies giving high limits to those who can not afford to pay it back.

    How do you see this getting fixed? I still get credit card offers every day in the mail and mortgage brokers calling me! Have we not learned anything?

    October 9, 2008 at 7:38 pm |
  4. David

    I'm continuing to pay into my 401K, but switched from stock to bonds three months ago. Yet even bonds have tanked in the last four weeks. Why is that? I thought there was a pretty opposite relationship between stocks and bonds?

    I've now put my 401K into a "Stable Fund" until there is at least a little confidence in the news. I don't care about missing the bottom, but I do not want to lose even more on the way down.

    October 9, 2008 at 7:21 pm |
  5. beyondsuccess

    Look into Gold and Silver. The U.S Dollar will be "worthless" in the near future.

    October 9, 2008 at 7:18 pm |
  6. Megan

    What would your advice be to the vast majority of Americans that are not invested in the stock market but are going to feel the brunt of this down the line, especially for the majority of Americans who do not have savings. How bad will this get for us? what do we have to look forward to? What and how should all of us be preparing for? Are we looking at another Depression? I hear about a prolonged Recession...isn't that a Depression? What do you do to prepare yourself for a Depression? My parents, as well as a number of people at my work, have taken extra money off thier credit cards to have as cash, is this a good idea (as long as you can make the new payment)? We are frightened and have not been asked, or really told, to do anything...so we are left to just sit, watch, and wait for the shoe to fall.

    October 9, 2008 at 5:02 pm |
  7. Kate Hoff

    I am a senior in high school and I have been looking into investing a little money (around 500 dollars) in stock before I head off to college, and I am waiting for the market to bottom out before investing, however when I do choose to invest what do you recommend I invest in?

    Thanks
    Kate Hoff

    October 9, 2008 at 4:14 pm |
  8. John Lyman

    I hear today that Henry Hank P. is talking bout' the government buying stock in banks by the end of October in order to try and shore things up. I'd like to know from any of the folks at CNN if this is finally a thing that will divert us from a big recession, or if it's just another "prescription" bottle like the one's Ali showed on 360 last night. I get very mixed signals. The IMF says we're in for a long nasty walk on the coals, but every time Hank P. announces another "prescription," he sounds very vague about what kind of effect it will have. Are we so far into this that we're in for a long and deep time of trouble and the prescriptions will only aleviate some of the pain? I'm not sure who to listen to anymore.

    October 9, 2008 at 3:22 pm |
  9. Todd

    This report was on ABC News. Will someone do the math for me. How much is the mortgage and is that amount representative of the mortgage mess everyone is talking about?

    Indymac, which was taken over by the Federal Depositors' Insurance Corporation in July, decided to reduce the interest rate on her mortgage, from 7 percent to 4.8 percent, generating a savings of $1,749 a month.

    October 9, 2008 at 2:17 pm |
  10. Luis

    I have a question about a principle. Since capital can't be destroyed only traded, if we are loosing, who's wining? Somebody must be wining. I understand that some assets can loose their value but unless our gold reserves are wiped, I understand that the capital is here and is just changing hands. I ask again if our markets are loosing value something must be growing in value.

    October 9, 2008 at 2:00 pm |
  11. Kristina

    Suze,

    I am so panicking now and not thinking straight of what I need to do with 401k investment. I can not stand to see the money going negative everyday. What is your advise for who is having investment in 401k about this market down time? Will I move my money into money market now and take a loss or stay in to wait until the market goes back up? If stays how far down will it drop, do you have any idea?

    Thanks so much for your inputs
    Kristina

    October 9, 2008 at 1:40 pm |
  12. Norma

    We did nothing WRONG !! We worked in our Small Business for 20 years, payed our bills, and put our extra money into income housing. Now our home and our income property are all upside down. Because of the economy ,our business is now almost completely dead!!! Because of this we cannot pay a mortgage that in the past, was easy for us to pay. This in turn has severely hurt our good credit. WHERE DO WE GO FOR FINANCIAL HELP !!!!

    October 9, 2008 at 12:18 pm |
  13. carolyn etienne

    October 9, 2008 When I first decided to comment on all the "latest events" it was October 1. In nine days the world has changed a lot! Who can you trust with your savings? The whole world knows about Sarah Palin and many aren't any more impressed with her than I am. Which is to say the lady needs to be educated first, then run for public office. Geography, sentence structure, etc. politics....world events.....I'm only a little worried about Obama. I haven't been this excited about a president since John Kennedy and did I mention I shook hands with his brother Bobby? I have the same excited feeling about Barack....We (my little cluster of a family) live in Southern Indiana. Our whole National Guard has been to Iraq twice. We have "the blade" Mitch Daniels in our Governor's seat. Only Dick Chaney and George Bush could be worse (I thought until I saw Sarah Palin )and now sorry to say, I have lost respect for John McCain. Who knew he too wanted to be a Bush Clone?

    October 9, 2008 at 12:07 pm |
  14. Tony

    Suze,

    I feel that you are on track when you stated the u.s. economy is in the E.R.
    My question to you is; people like gerry willis, and others are very negitive when it come to pulling your money out of the stock market or 401k. It is very clear that they are not interested in the people. What is wrong with pulling out your stocks or 401k during these hard times? In my opionion, nothing at all ! And when you pull out your money why can't someone give good advice as where to put it enstead of watching for money disapear? Someone has to tell the american public it is allright to pull your money, and feel good about it !

    October 9, 2008 at 11:57 am |
  15. NCaiello

    Why is no one discussing the role, or lack there of, of the Security and Exchange Commission.
    "The SEC was established by the United States Congress in 1934 as an independent, non-partisan, quasi-judicial regulatory agency following years of depression caused by over production of goods, the introduction of consumer credit, and the Great Crash of 1929. The main reason for the creation of the SEC was to regulate the stock market and prevent corporate abuses relating to the offering and sale of securities and corporate reporting. The SEC was given the power to license and regulate stock exchanges. Currently, the SEC is responsible for administering seven major laws that govern the securities industry."
    Why do we need yet another government entity when the first one failed to protect the public from our current system failures?

    October 9, 2008 at 11:53 am |
  16. Sandra Albo

    Hi Suze, Thank you for your help. I was just about to buy a variable annuity from Met Life with money I had in a IRA Keogh plan that I have set up for retirement.I was not sure what was happenning wih Met Life needing to raise capital so I decided not to go through with it. Can you tell me what if any is insured with repsect to a variable annuity?

    Many thanks, Sandy

    October 9, 2008 at 11:47 am |
  17. M. Leonard

    When we look at our current economic crisis, each American must look in the mirror. The current generation's interest in making a quick buck, wanting it now, and believing they have a inherent right to the American dream is a major factor in what put us in this situation. Before we can fix our economic problems we must address the greed and the situation awareness of the everyday borrower, making them smarter, responsible, and accountable.

    October 9, 2008 at 11:47 am |
  18. Jerry

    If I own stock in a financial service company and I need the money within six years, should I sell at this time?

    October 9, 2008 at 11:44 am |
  19. John

    Before the bailout was approved, we were told the 700 billion bailout was needed, or else our 401Ks would take a beating. Well, they are taking a beating anyway, so just what did we gain by giving away $700 billion to the banking industry?

    October 9, 2008 at 11:41 am |
  20. Tony Burchfield

    Is it possible to have a web site showing who and were the bailout
    money is going so the tax payer can track our money.

    October 9, 2008 at 11:25 am |
  21. Craig Plank, Wichita, KS

    Suze:

    When will you and other presumed "financial experts" ever shut up?! (And shame on CNN and other media outlets for continuing to provide a "front page" forum.)

    You continue to sew the seeds of fear, gloom, doom, "end-of-the-world as we know it" sputum.

    It's time to speak responsibly and calmly. Markets go up, markets go down. This too shall pass.

    October 9, 2008 at 11:14 am |
  22. Michael

    How come a stimulus package has not been mentioned or considered from the point of working from bottom to top. Ali Velshi and yourself has mentioned how this package would stimulate the economy, flowing down to main street. Why not Give a "rebate" to consumers who could use the money for a variety of options. It would ultimately flow upward and provide the some of the same desired relief. It's the tax payers money anyway, correct?

    October 9, 2008 at 11:13 am |
  23. Suellen Johnson

    I am concerned that the government is only buying BAD DEBT and BAD LOANS. Now, we are seriously in debt as a nation. At what point, are we bankrupt?

    They are not trying other options like REQUIRING down payments on mortgages, reviewing bad mortgage loans, holding executives in the banking industry and financial industry responsible for a culture of greed and irresponsibility, ie. going after them for fraud and abuse and failing in their fiduciary duty to stockholders, firing incompetent executives, etc. Congress is responsible for the oversight of Fannie Mae and Freddie Mac. If they want to fix those entities, they have the power to do it. They can also repeal the capitol gains tax like in China and Singapore. They can make changes in energy policy NOW, not later. They can give awards of money to inventors. They can help small businesses thru tax changes. They could stand up as a body and ask Americans to live below their means. They can encourage everyone to start emergency savings for 3 mos. salary. Americans have a horrible savings rate. They can stop the shop till you drop mentality of Americans. They can encourage businesses to help Americans take emergency savings right out of their salary just like 401K plans. They can encourage personal financial management classes thru Crown or Dave Ramsey's group to help people with their money at the personal level. They can put a freeze on spending NOW [not wait for McCain to be elected in November]. They can repeal bad laws and give-aways to organizations like ACORN. They can stop imports from China except for those necessary to the national defense until our trade balance is more appropriate. They can encourage businesses to invest in America and not overseas causing our balance of trade to be ruinous. There are all kinds of things that can be done without this INCREASE IN DEBT.

    The State of MS has had special legislative sesions for education and healthcare reform. There is absolutely no reason why Congress cannot have a special session on economic and financial reform to change the destiny of this nation!

    I demand better leadership!

    October 9, 2008 at 11:13 am |
  24. Sherri

    Suze,

    Here is an idea. Let people withdraw their 401k without penalty if they use the money to pay their mortgage. Tax free withdrawel would be even better. I think this should be required before the government buys a mortgage.

    October 9, 2008 at 11:07 am |
  25. Dianne

    What would you do with money market funds held in brokerage accounts, like Fidelity? Are they safely covered against bankruptcy by the brokerage insurance SIPC? Do you think these funds should be moved to a bank into a regular cash account?

    October 9, 2008 at 10:56 am |
  26. J. P. Haynes

    I'm a postal worker under the TSP(thrift savings plan). A few months ago I put my profits in the G-fund(gov't), but I continue to buy in the C-fund(common stock) and I-fund(international). I won't need the money for another 20 years. However, my concern is when should I put my profits back into the market, how stable are all the companies within the funds I'm currently investing, and should I invest in the S-fund(small-cap) for maximum profitability?

    J.P. Haynes
    Lafayette,LA.

    October 9, 2008 at 10:46 am |
  27. Harry S

    I heard the financial experts saying if you have 10+ years, just hang in there.
    What if you only have 5 years?
    What then?

    October 9, 2008 at 10:16 am |
  28. Rakesh Patel

    I have question on My pension . i have my pension money with the company and i dont work for that company anymore . what should do with my 401k and pension money .
    also i have my money in variable annuity ,should i take my money out of variable annuity .

    October 9, 2008 at 10:12 am |
  29. alyssa

    I have 29 years left on my mortgage – I owe about 50,000 more than its current market value – how do people in this situation justify making these mortgage payments every month? Its a killer to the wallet, to morale, to life in general? My current payment is 2600 per month on a FHA mortgage at 6.75%. Streamline refinance – how? I don't have equity. HELP

    October 9, 2008 at 10:10 am |
  30. john mulligan

    Now is the time to rescue our societies anxiety by stabilizing our neighborhoods home ownership. The 700 billion provided by our congress should set the following plan in motion. All home owners who are currently effected by the current mortgage crisis should be allowed to refinance. The plan should provide $5,000.00 per home to be paid to bank as a stimulus and paper cost . The homeowner would then recast their mortgage on a forty year note for whatever their current balance at 7%. If at anytime in the future they were to sell the home they would split the profit with the bank. Example Mr. and Mrs. Home bought house for 300,000 and now owe 297,000. The new mortgage would be for 297,000 for 40 years. If they sell house for 400,000. in the future before the mortgage is paid off then they would split 100,000. with the bank based on original purchase price. 400,000. less original price of 300,000. equals 100,000.
    This plan would cost the taxpayers 50 billion coming from the 700 billion. The most important part of this plan would be the fact there would be fewer empty homes which would stop the negative feelings existing homeowners currently have about there own properties. The demand for housing is classic supply and demand. Add to that affordability and you have the price a buyer would pay in any given community. As we have seen over the last 100 years with growth of population and inflation home pricing goes through cycles and always cost more unless a neighborhood goes into abandonment.
    Banks would improve their balance sheets just by the fact that real estate would be stabilized and this would give investors a reason to invest. The $5,000. paper cost would generate revenue for the banks and on top of the 650 billion that Uncle Sam is now working on. The final thing is the banks now have a future windfall potential in the future when the homeowner sells the home.
    Let us move forward so that our society can get back to work. Thank you

    John Mulligan

    October 9, 2008 at 10:10 am |
  31. Robert Barta

    Suze,
    Thanks so much for your advice over the years. I am really upset that the banks did not run operations like banks. They were predatory, granted risky loans with a greedy long term business plan. And when that ran it's course, politicians bailed out those who could not afford increases in their rate. But the banks still wanted to make their bottom line profit, so they were raising their mortgage rates on those who could afford their mortgage even while the Fed was lowering theirs to make up the difference. They even wanted me to take out equity in my home so that I could pay them more interest. Instead, I paid off my mortgage and got out of their predatory game – which provided a 2nd benefit as I had my money pulled out of the stock market a few months ago.

    Most people can't do that because they are in deep credit card debt that they also can't afford and have little or no savings. I read your piece yesterday about the couple with $90k credit card debt because he lost his job last spring and were $2k/month in the red.....ummm.....that means they were plenty in debt before he was layed off. Financially irresponsible.

    Government and politicians want to "stablize" the housing market, when it was artificially pumped up by "interest only" and other loans that told you "you can buy more house this way", when really you were just buying the same house for more $$$. And how come none of the politicians saw this coming when I had been complaining about it for years. It's not like they provide a great example of financial responsibility either.

    So, I'm mad at the banks, politicians/government and my fellow man. Everyone trying to game it , scheme each other and live beyond their means. And who gets hurt...everyone including the schemers. So now we have to bail out the schemers, the financial irresponsible, the greedy to keep the whole thing from collapsing? Maybe we would be better off letting it all collapse so that people learn something.

    Robert

    October 9, 2008 at 10:09 am |
  32. Julie

    My son is two yrs. old right now, should I take money out of his college fund or keep contributing money into the fund every month? Also, should I open a college fund for my 11 month old or wait another couple of years to do so?

    October 9, 2008 at 10:06 am |
  33. pauline blackburn

    Hi Suze,

    I am planning to retire in the next 10 -15 years. You are saying not to suspend my contribution to my 401K, but am I not throwing my hard earned money away. Every little I put into my account and that which I have accumulated is dwindling. Wouldn't it be wiser to put that money into a savings account until the market stabilizes itself? The very least I would be able to save instead of loosing my current contribution.

    October 9, 2008 at 10:03 am |