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Frustration Station


Once in a while you get shown the light in the strangest of places if you look at it right.


I typically begin my morning missives with some rhythmic rhymes to help pass the time. It's not the most conventional approach, I know, but there is a method to the madness and a reason why I try to inject a dose of levity throughout the day. This business--our business--has changed during the last few years and smiles aren't as frequent as they once were. In fact, ever since the pop topped, it's taken a helluva lot of effort to make a what was once considered gravy. And while we may not be proud of this fact, the sad truth is that our happiness all too often a function of our P&L.

After my ever-so-brief workout last night, I ran into an old pal in the locker room. I've known this fellow for a good ten years and he always had a sunny disposition. But not last night and, from the looks of it, not for a while. "It's just not fun anymore," he said without my prompting, "it just seems like the world has changed and everything is a struggle. By the time you craft a thesis, the market shifts and new catalysts are introduced to the equation. And it's impossible to have conviction in anything as positions have gotten crowded and cramped."

It's not the first time I've had this conversation and it surely won't be the last. Words like "overcapacity" and phrases like "weeding out" are observations and opinions until such time that you arrive at "that" point. You know what I'm talking about--it's that moment when you ask yourself some questions about who you are, how you're living your life and if there's a higher purpose for your being. Perhaps I'm showing my age and maybe I'm projecting my angst but from what I can tell and what I hear, I'm not alone in my frustration.

I commented yesterday that double digit returns would put you on a pedestal in '04 while the same performance would cause investors to balk as early as last year. Therein lies the double edged sword of the current dichotomy--the tails of return are diminishing while the basis of comparison is skewed. The internet generation is used to wild swings that allow for outsized gains for the nimble of hand. And while the three down years that immediately followed the bubble were an expensive lesson for many, the collective mindset still views profiting as a right rather than a privilege.

I don't like bangin' the Red Dye drum--trust me, it's as depressing to write about it as I'm sure it is to read it. To be sure, there remains a distinct possibility that the jugglers at the Fed can keep the balls in the air for longer than most expect. The angst over oil and the funky Fannie fizzle are legitimate concerns but if they don't dent the tape, the ability to shrug off the negatives will be embraced by the bulls. I'm currently balancing the potential for a good ol' fashioned Dubya ramp with the unfortunate reality that we may be a target heading into the election. Two completely opposite directions with a legitimate probability assigned to both. And you wonder why folks are struggling with the Minx?

The first step to overcoming adversity is identifying the problem and many are slowly coming to terms with the fact that it's much harder than it used to be. Trying to squeeze water from a stone isn't a viable solution. In fact, that "compression" will ultimately serve to eliminate some of the hedge fund supply that's squeezing returns. It is going to be a long hard road--in many ways, it already is--so understanding and adapting to the environment is the initial order of business. In the end, preservation of capital is the first step towards profitability and the sooner we accept that, the more likely it is that our perception of success will allow us to again enjoy our once noble profession.

Good luck today.

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