Wednesday, October 8, 2008

Where Have All the Flowers Gone?

They're still here, and they're on sale!

Ugh, I just lost 12% of my 401k.

I am having a hard time explaining the market to my 14 year-old. He keeps coming back to "Yeah, but where did all the money go?"

The only huge variable in my budget is the groceries. Seriously, there are $200/week to be won or lost. Here's my new trick: Stop at the new fresh market gourmet store carefully spend $30 on specialty items to jazz up the fare. They have incredibly beautiful baked goods. Last night, I got a coffee flavored coffee cake. How decadently redundant! : )


Sue said...

Your son is very perceptive. I was trying to explain much the same thing to my students this afternoon.

That coffee cake sounds mouthwateringly decadent.

I'm lucky in that as I near retirement (any where from 5 to 9 years depending upon the economy) I have shifted most of my retirement out of the market and into an insured annuity (TIAA for academics and scientists). Only 1/10 was in the market, and I lost about 20% of that 10th. But you're young, and the market will almost certainly rebound long before you reach retirement age. Think about it this way, with so many of the stocks valued at less, keeping your contributions at the same level buys a lot more shares, and so ultimately when it rebounds you get benefit even more. It's the people who are already retired or expect to retire in the next year or two who are seeing real decreases in their incomes.

Qaro said...

I try to tell my son "It's like you have a car that's worth $10,000 and you crash it. It's just not worth that much anymore."

It's good about the annuity.

I do have the same number of units I did before, that's my good thing.

Sue said...

You know the funny thing, is that it's not really like the car, either. Social scientists like to distinguish between "use value" and "exchange value." When you crash the car, both the use value (you can't drive it) and the exchange value (you can get less for it if you try to sell it) go down. The current economy thing though is only about exchange value. It's more like the automatic depreciation of the value of a new car the minute that you drive it off the lot. The use value of the car is the same, it does all the same things, but you can't get as much for it "used" (even just a few days used) than you can for it "new."
Take the economic resource of a house: The use value of a house is that it protects its occupants from the elements, from cold or heat, rain or sleet. Its use value includes the pleasure the owners get from privacy or from enjoying the way their house looks or feels. Moreover, ownership versus renting housing adds use value, in the ability to make changes, alterations, and modifications to the home; the have the freedom to have pets, put up fences, and outbuildings that might be restricted by leases or rental agreements. The use value of a house can decline -- wiring and plumbing can break down, roofs can leak, paint can fade and crack, families can grow larger and the space may no longer be adequate, or undesirable "neighbors" can move in next door (like a strip mine)and lessen the pleasure or privacy derived from the home. But declines in use value tend to be slow and incremental. The decline in housing "value" over the past year or two has been a decline in exchange value, not use value; a decline in what one can sell one's home for (exchange it in the market place). The dramatic decline in exchange value recently, has only a little to do with the use value of homes. Moreover, the rise in housing costs over the past two decades, had little to do with increases in the use value of housing. The rise in housing exchange value over the past two decades had to do with the availability of more money to more people (through the credit system)to purchase houses. The recent decline is primarily due to people having less money to spend on housing (as credit dried up due to rising default rates).

ChefNick said...

Oh god, my father just told me he lost $147,000 just in the last couple of weeks . . .

Qaro said...

Sue: Thanks for that explanation. I'll have to put exchange value vs. use value like that to my kids. Maybe an "Antiques Roadshow" metaphor would work for them.

Nick: Oh my gosh! I hope he gets most of it back...

My 401k is down 23k now. But I miss my husband's check much more: grocery money! He's a carpenter and he frames luxury homes. The declining housing market did not actually effect luxury homes as much as it did regular subdivision homes. (Or as we call them "middle class Projects".)

People who buy luxury homes don't buy pre-made cookie-cutter houses. They want to work with an architect and design something unique (unusual exposed rafters, panic rooms, that kind of thing). These houses take 2-6 months just to frame. But, what DID freeze up this market is a stock market crash, putting these dream homes on HOLD. And that's where we are for a few weeks at least.

(We just live in a regular ranch house close to the elementary school. We wanted to get out of here and into something with more room once the kids got to high school. Now it looks like we're stuck for a while. I've already heard horror stories about decent people who cannot get loans right now.)

Sue said...

Yes, it's the employment situation that is really worrisome.