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Funny Money

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Nobody said it was gonna be easy!

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Money, it's a crime.
Share it fairly but don't take a slice of my pie.
Money, so they say
Is the root of all evil today

(Pink Floyd)



Good morning and welcome back to the shimmying shack. The Matador Crowd arrived yesterday with pep in their step and plenty to say. They started out strong (with internals to match) and pulled Minx through our sluggish soft patch. "As long as the banks hold onto a bid," said Hoofy the bull while tipping his lid, "I don't think the tape is going to skid or give any love to those grumpy bear kids!" Was it one and done, this silly green fun, or can the bovine now go on a run? It's tricky, it's Tuesday, it's sure to excite so dig in your heels as we search for white light!

There's a lot going on in the market these days as we push and we pull through the minxy malaise. While the Minyanville mission has always been predicated on fiscal literacy (and providing the information needed to make better decisions), it's important to view the dew through the proper context. In that vein, and with proactive perspective in mind, I wanna scribe today's vibe in a slightly different direction.

We often discuss how the financial markets precondition us to believe that our net worth dictates our self worth. I fell into that trap over the years and was often consumed with my daily P&L. When I saw that ball and hit it hard, I was typically giddy until it was time to tee it up. When I slipped-and it happens to the best of us-the self-loathing was palpable until redemption set in. There's a certain finality that comes with the "bottom line" and therein lies the point of today's column.

One of the psychological subsets of bubbles past was the adopted mindset that profiting was our given right. It started in the late '90's when money seemed to spout from the financial markets and drape jewels on anyone within spittin' distance of the flickering ticks. Not only did that richly reward those in our industry who were lucky enough to be standing near the cash register, it also pulled participants towards the sexy sirens with promises of easy money and the next best thing.

As is typically the case (and as we're seeing now in real estate), the reachers and grabbers were left holding the bag. Not only did that "trap" alotta newbies in unfamiliar territory, it added supply to an industry already mired in overcapacity. I've been writing about the "long hard road" since 2000 yet, from where I sit, it continues to feel like hope remains a dominant emotion in the marketplace. It's hard to blame folks for their blind belief-we get assurances from our Fed with every uptick-but the onus is on us to manage expectations as we forge ahead.

Two of the primary vibes at last week's Minyanfest included the absence of discipline (among market participants) and the attendant cost of risk. I would wager to guess that the double digit returns of periods past have helped shape the collective mindset by providing an unrealistic basis of comparison. We've already seen the "tails of return" mitigate as a function of compression and, while there have been hints of an unwind, we've yet to pay the piper or sooth those sexy sirens. Risk management is the first step towards the proactive protection of capital but "expectation management" is just as important to the process.

It's alright to admit that it's hard. In fact, ego is the last reason that you should risk your hard earned coin. While we live in an immediate gratification society, the simple truth is that money is no longer "easy" and the lifestyle curve has steepened. If you don't know what I'm talking about, count yourself lucky but be aware of the scare. As disposable income drips like sands through the hourglass, the drag on the economy-and, with it, the collective psychology-will have profound implications for the world we live in.

What's my point?

Capital preservation is the first step towards profitability and we should each map out a suitable time horizon for our risk. That is unique to each Minyan but we share a commonality in the collective effort. The landscape seems to shift on a daily basis but opportunities remain for the patient, adaptive and lucid participants. The sooner we respect the difficult nature of the tape, the more likely we are to humbly succeed where others dare to tread. And with a little luck and a lot of discipline, we may actually enjoy the journey as we find our way through the fray.

Good luck today.


R.P.

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