Curing the Disease of Heightened Expectations

Interest-only mortgage

Bill Watterson, American cartoonist of Calvin and Hobbes fame, once said:

I find my life a lot easier the lower I keep my expectations.

There is a world of wisdom in those 13 simple words. Wisdom that, all too often, escapes those who need to hear it most.

It’s no secret that the Australian economy is awash in debt. Or that it’s powered by cheap credit. But its biggest problem isn’t material at all. What we as a nation struggle with most is the idea that our expectations of life are not only reasonable, but merited.

This is a dangerous assumption to make. Not least because there is no quicker avenue to self-made misery than having unrealistic expectations.

But this may be no fault of our own. It’s arguable that high expectations are the inevitable consequence of prosperity. The more a society exposes itself to prosperity, the more it comes to expect financial reward.

The typical Australian grows up believing that owning property is a given right. Some even learn to measure wealth in the number of properties they accrue.

This phenomenon is known as the Law of More. More houses. More money. More success. More respect. And more of anything else we can get our hands on.

The problem with this is that it leaves little room for standing still. Or, heaven forbid, sliding backwards. The more we have, the more we have to lose. This fear of loss, and what it pushes us to do to avoid it, leads to unhappiness and financial hardship.

In effect, our actions sow the seeds of our dissatisfaction with finances, and life in general.

Yet if we learned to temper our expectations, instead of letting them fester, we could regain some sense of freedom.

More than ever, Australians are now struggling to cope with elevated expectations.

Some 763,000 Aussies now hold second jobs to supplement their income, according to a new ABS report. That represents a 9% rise since the start of the decade.

Is this a sign that, having seen living costs rise and wages stagnate, people need every penny they can get their hands on to make ends meet?

We assumed that was the case. And, in a sense, that is the case.

But, as the story of Sophie Watkins shows, it’s not quite as black and white as that.

Drowning in a sea of expectation

Ms Watkins, a 29-year-old living in Tasmania, works two jobs. By day, she works 38 hours a week in a typical government job.

Like most fulltime workers, her day starts mid-morning, and finishes at five o’clock.

When most people are trying to beat rush-hour traffic at 5:30pm, Ms Watkins is walking through the doors of her second job. She won’t walk out until 8:30am the next day. At which point she’ll be on the way to her day job again.

Ms Watkins does this three times a week and, understandably, laments her situation.

It’s a sobering tale of the struggles of modern-day life. Or at least it would be if Ms Watkins wasn’t afflicted by the disease of heightened expectations.

We won’t assume to know her financial situation intimately. But, in learning about her story through ABC News this week, we did raise our eyebrows by what we read.

If we knew nothing else about her, we’d assume Ms Watkins rented her accommodation. Or that she was struggling to pay down a modest mortgage. But we’d be wrong.

Ms Watkins is, in fact, an owner of not one but two mortgages. And she expects to upgrade to a larger home in the future. But in order to afford it, she says that she’d need to take on more work.

Is this a life the average Australian should aspire to? Working multiple jobs and not coming home for days to finance a life lived more in the mind than in reality?

We don’t believe so. But, in an economy built on flipping houses to each other, maybe Australians have no choice.

We understand that her particular situation isn’t common across the nation. And that many people work two jobs because underemployment is an issue, and living costs are high. But it doesn’t matter if your vice is houses or booze. Failing to match your expectations to current living circumstances invites unnecessary hardship into your life.

Would Ms Watkins’ life improve if she only had one mortgage? We think we know the answer, but we can’t say for sure.

What we do know is that people would achieve greater financial freedom if they tempered their expectations once in a while.

That said, we suspect our advice may fall on deaf ears. So Ms Watkins may have to take up a third job after all.

This week in Markets & Money

On Monday, Vern looked at Amazon’s unwanted effect on inflation in Japan. The country’s retailers have been cutting prices in response to online rivals stealing market share.

The Bank of Japan can’t seem to catch a break. It wants to boost inflation, but online retailers are creating more deflation.

The central bank isn’t happy. But why would it be?

It’s not the debt load of 600% of GDP that’s the problem. Or the ageing population less inclined to indulge in debt. No, it’s Amazon that’s the real problem… At least the central bank has an outsider to blame for its policy failures.

For more on this story, click here.

On Tuesday, Jason looked at the recent fall in the US dollar index. The index, which tracks six major currencies pegged to the greenback, was trading at a 13-month low.

With the US dollar index sliding, does it mean gold is set to break out into a bull market? It seems so.

As Jason noted, the Trump administration is facing one crisis after another. And planned reforms have gotten nowhere.

Which is why Jason says you shouldn’t be surprised if investors keep selling US dollars and buying gold. For his full analysis on this story, click here.

And what about the stock market?

The Dow Jones remains bullish at present, which bodes well for the ASX.

The Dow has been in an uptrend for 18 months now. That suggests it’s still a good time to buy stocks. But either of the two sticking points Jason identified could change that overnight.

One is a deterioration in China’s economy. The other is a US Federal Reserve interest rate policy shift. Together, they could trigger a 10–15% stock market correction. What’s the relationship? Read Jason’s full analysis in Wednesday’s Markets & Money here.

On Thursday, Terence Duffy revealed the easiest way to sort fact from fiction in the markets. Learning to read a company’s price chart is your best bet to shutting out all the market noise.

Take China, for instance. Much of the media’s reporting on the Middle Kingdom has been negative, be it about shadow banking time bombs or ghost cities.

But is that the reality? Not so, says Terence. He brought up a chart of the SPDR S&P China ETF. This ETF tracks the S&P China BMI Index, which gives a broad exposure to the Chinese market.

Despite the dire predictions, the chart continues to find higher support.

Had you been reading the chart, you’d have known this for a year now. Something that the market is now only catching on to.

A chart deals in facts, not emotions.  Having these types of insights can be crucial to succeeding in today’s market. You can learn more about understanding chart reading here.

On Friday, Vern tackled the dangers of unquestioned beliefs. Like, for instance, the belief that central bankers can manage an economy and market efficiently.

No modern-day Federal Reserve chief saw the risks building in the system in the lead-up to 2008. Doesn’t this prove to the world that central bankers are negligent in their duties? Apparently not.

Vern says that only a greater crisis will shatter the public’s belief in central banks. Unfortunately, it’s also likely to result in a great deal of money being sacrificed by those who worshipped at the altar of these false economic gods. For more on this story, click here.

Until next week,

Mat Spasic,
For Markets & Money

Markets and Money

Markets and Money

Markets and Money offers an independent and critical perspective on the Australian and global investment markets.

Slightly offbeat and far from institutional, Markets and Money delivers you straight-forward, humorous, and useful investment insights from a world wide network of analysts, contrarians, and successful investors. 

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