Ignorance is Bliss and Insight is Torture

I have a friend, lets call him Zed, who despite being a lovely person, has always been afflicted by the “Keeping Up with the Jones’s” syndrome. In fact Zed says he is the Jones’s 🙂 .

Zed is academically smart and he and his wife have solid professions, but not the type that you would associate with substantial wealth accumulation. However, that is not something that will stop a hungry, ambitious person with no knowledge of economic history, and a favourable interest rate cycle. In fact the most favourable interest rate cycle of all time.

You see 15 yrs ago Zed converted to the Australian religion of Property Only goes up. This myopic economic understanding has proven exceptionally profitable for Zed, as he now lives in a $5 million home with two luxury cars and two overseas holidays annually.

More recently the absurdity of Zed’s circumstances highlighted that we have seen this movie before. In fact it wasn’t a long time ago across the Pacific Ocean pond that we saw the US housing market collapse under the weight of bad loans. Here is the part that makes this story point come to life.

Zed just ordered a dream luxury sports car to bolster his material image. Ok we could forgive Zed if things on the business front were humming along. No, if only that were the case. Zed’s business is going down the toilet his turnover has been steadily dropping over the last few years and business is currently so bad that he is barely able to draw a reduced salary. But fear not, interest rates are so low and the growth in value of his residential property has provided him with a very nice equity cushion, which he happily draws down on. Gone are his interest rate fixes which might give one certainty for a few years in favour of milking every cent of the lower rates to finance his extravagant lifestyle.

According to Zed I am a dumbo and don’t understand the demographics and the fact that property has only gone up or sideways for the last 40 yrs. The fact that I have a Ph.D. in economics and spent more than 12 yrs as a senior executive in the property industry is lost on his cognitive bias, and financial need to be right.

Meanwhile I have absolutely no desire to lead the extravagant lifestyle my friend Zed “enjoys”, but I watch him increasing his debt against his inflated asset all the while knowing that long term consumption in substitute of investing in productive assets is a one way journey to poor street. I am witnessing Zed climb an ever higher diving board, but he doesn’t realize that not only is he diving into a shallow pond but the water in which he is diving into is leaking.

Knowing that there is only one way this will all end is absolute torture as I watch good people fall into the traps of materialism and to a lesser extent have to endure the ridicule of my circle telling me how I am so wrong. Remember the famous words, “this time is different” – Not!

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s