Tuesday, August 09, 2011

Financial Turmoil

With all the noise in the news regarding the latest market crash, it is time for another financially oriented post.  Most American families have little to no savings, have oppressive mortgages and are living hand to mouth.  Those families did not lose anything in the crash, will have lower mortgage rates and should see some relief at the pump as oil is cheaper.  Retirees will get stung the worst as they have substantially larger savings, own their homes and gas is a smaller part of their budget. 

The rest of us are in the middle with one or two incomes, some savings in retirement and liquid financial assets, a standard mortgage and gas consumption on the order of 1000 gallons/year.  The correction since the market peak on the S&P 500 is 14%.  That is a lot of money which probably won’t be recapped for two years on retirement funds.  If a person had $100,000 in undiversified retirement assets, that amounts to a $14,000 hit.  However if that same person had a $100,000 mortgage, they could refinance and save about $50/month.  Further if gas prices drop to $3/gallon from $3.50/gallon that amounts to an additional savings of $40/month.

For those individuals who were saving up for new appliances, a car, or a home remodel, there are substantial savings to be had.  The stock market and real estate drops make people feel poor and there is usually some belt tightening.  That means canceling Netflix or dining out less frequently.  However people who were planning on putting a $5000 down payment on a car may wait a year to see what happens.  That is where smart shoppers can get a nice deal.

Finally for the “End of the World as We Know It (EOTWAWKI)” crowd, they are relishing in the collapse of currencies and gold hitting an all time high.  They have plenty of canned goods in the house and enough ammunition to discourage any uptick in home invations.

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