Dirty Thoughts: Fast cars and pretty stories
Dirty Larry, the Open Road, and a world full of danger and possibility
The market is a car driven by a maniac. In this case we shall call the maniac Dirty Larry. We all like Larry because he is fun and spontaneous. We also hate Larry because he is manic and sometimes does crazy things. And his driving is terrible. But you get in the car anyway because, hey, it’s Larry and Larry is fun. Larry tells us that he is driving us to Fort Worth (from Austin) for a weekend of Dance Halls and honkeytonkin’. So away we go and northbound on I-35 going 95mph and it’s a thrilling ride. Eventually we both doze off and then wake and realize that somewhere near Waco Larry took a turn. He got one of those wild hairs that he gets. And now he is taking so many twists and turns down dark country roads that we have no idea where we are. Will we end up in Shreveport? El Paso? Phoenix? LA? Or maybe Mexico? It’s anybody’s guess. Dirty Larry is at the wheel and he ain’t talking. He’s just got that look on his face. Boy are we in for it now.
Narrative versus reality
I pay a lot of attention to narrative. Because We, Humans™ are built to run on story. Story and linear thinking are how we make sense of the world. If X then Y. Oh what’s that? Interest rates went up? Well that is because the markets are divesting of treasuries due to fears that the Fed will blah blah…
This is the narrative. The story. And variations of it play out in billions of minds the world over (a little over 7.8 billion, in fact) as people come to terms with and rationalize the chaotic and unknowable reality. I love hanging around Twitter because you get dozens of competing narratives and each is convinced of their own rightness (and righteousness). It’s good to know what a variety of people are thinking. It gives one a sense of where we might be headed (provided you are not following complete doofuses like that guy who writes theDirt). Yes, even I, dear reader, am guilty of narrative. Even though I know better. Which means that I am guilty of over-simplification and getting things wrong - hey man, I’m human. I was built this way. Just can’t help it. Sorry.
Narrative is important because it can drive reality. Drive, you say? Yes. And Narrative is Dirty Larry. Dirty Larry is Narrative. If enough people pick up on a single narrative, it will absolutely drive a market. It becomes a self-fulfilling prophecy. Ninety-five mph and northbound ‘till dawn. This is how market sell-offs, stampedes in crowded stadiums, and flights from battlefields start. A few people make a rush for the exit, panic spreads, and next thing you know you have a full-on route on your hands. The opposite is equally true with manias and driving prices up - what do you mean I got five offers over asking on this dump!?
Narrative can drive markets toward a point for a while. But remember that Dirty Larry is manic and fickle. He gets wild hairs and changes his mind at the drop of a hat. What’s worse, Larry has a terrible sense of direction. Sometimes he takes a wrong turn down a back road thinking he is going to New Orleans. But Dirty Harry actually just pulled a 180 and is headed right back to Austin.
Headed back to Austin
So what about when reality isn’t anywhere close to narrative (or, at least, not close yet).
Last weekend Twitter was full of speculation about the meltdown of a very large, European bank (an event that would likely trigger a global financial crisis): Credit Suisse. Some said that the bank is doomed. Others said it was doomed but would be rescued. Some said all is fine. And, of course, some said that we were all going to die due to the nuclear fallout from the resulting wars. Well…
Monday came and nothing happened. Being a fan of the markets is a lot like being a fan of Texas Aggie Football: you get all primed for a great show and then hear the sound of deflating whoopie cushions once the game starts. Of course, being a long time fan of Aggie football, I also know that they will absolutely surprise you when you are not looking (Alabama was soooooo close).
Now enter that old, dead horse: real estate prices and interest rates. Some say that real estate is doomed for a long, downward spiral. Some say that the Fed will pivot, that interest rates will come down, and that all will be well next year. Some (including Your Humble Author) surmise that things will go mostly sideways with lots of volatile ups and downs in between. Who is right? Who is wrong? What happens when you cross an elephant with a rhino? El-if-I-know.
Money is made where reality =/= narrative
The tricky-trick is to find that little spot where the narrative may not apply. Or is dead-ass wrong. My personal project of late has been farm land - as in productive agricultural acres. I like it because this type of property is not as levered as all the rest. A lot of land deals are still cash deals. It tends, therefore, to be less volatile (a lesson learned from the 70’s and 80’s). Also because ag land makes food and we all like food, right? I have no intention of giving up food anytime soon. How about you?
Is Ag land going to be the next Amazon or Apple? Hell no. But it ain’t gonna be the next Pets.com either. That is the story I tell myself anyway. And right now I engage in lots and lots of research in a very sorta scientific-ish way to prove or disprove my thesis (paid subscribers will have access to my research as it develops).
I am also sniffing around other types of real estate. Thar’ be whales in them waters, cap’n, and fortunes are made when there is blood in the streets. The current narrative says that things are getting bloody. I’m not going all-in on any of those stories yet, but I am sure keeping my options open. Always remember the Aggies can surprise both ways.
Now back to Dirty Larry and his wild nighttime ride. We are all in Dirty’s Larry’s car. We thought we were headed to Fort Worth. Now? Well now we are just trying to make sense of where we are and where we are going by the scenery around us. Pine trees? Headed east. Hill country then desert? West. Salt flats and beaches? South. Acres of flat grass or crops in rows? North-ish. So keep your eyes peeled and look for the evidence. Let me know what you see. Of course this ain’t easy because it’s dark out and Dirty Larry is driving really fast. He’s also got a smirk and a twinkle in his eye. And we all know what that means. Dirty Larry has mischief on his mind.