Playing Blind

“We can be blind to the obvious, and we are also blind to our blindness.”

-Daniel Kahneman


That’s one of what I expect to be many solid risk management quotes from the book I am currently reviewing, “Thinking, Fast and Slow” by behavioral psychologist/economist Daniel Kahneman (page 24).


Are we blind to the obvious? Are we blind to our own blindness? I think we should probably ask ourselves that question both as individuals and as leaders in our society each and every day.


Last night, Daryl Jones, David Bergerson, and I hosted a dinner with 10 Portfolio Managers in mid-town Manhattan. This wasn’t an “idea dinner” like the ones the Old Wall still tries to host where people push their books. This was a legitimate Global Macro debate.


Fully loaded with the political discussion (which even if you’re not political actually has to be had – which is sad, I know), after 3 hours I concluded that we are all Playing Blind to what could ultimately happen out there each and every day.


Iran, Europe, Qe3? Romney, China, Gold? Growth, Earnings, Levels?


It’s all out there. It’s all interconnected. And the only way to even begin to attempt to absorb it all is to have a repeatable risk management process that’s Multi-Factor and Multi-Duration. Embrace Uncertainty.


Back to the Global Macro Grind


What I didn’t expect this morning was waking up to another central planning rumor.


These central planners, like most Keynesians, fundamentally believe that they can temporarily arrest gravity. When their plans don’t work, they just make it a bigger plan.


How about a trillion?


That’s the IMF “rumor” this morning. Never mind contextualizing what a trillion dollars actually is or that any IMF sponsored trillion dollar package is implicitly backstopped by the United States of America’s tax payers – just think about it some more – think fast and slow - and watch the S&P futures whip around on this while you attempt to remain sane.


What are markets doing on that?


(hint, they are going up)


What do you do with that?

  1. You stay out of the way on the short EUR/USD position until it re-tests $1.31 (immediate-term TRADE resistance)
  2. You stay out of the way on the short German DAX position until it re-tests 6502 (long-term TAIL resistance)
  3. Your stay away from economists at the World Bank (another Washington based beauty) and their estimates

That 3rdpoint is more of a transition sentence to what is a Top 3 Most Read on Bloomberg today (next to Jerry Yang and Carnival Cruise lines): “World Bank Cuts Global Growth Estimates.” Gee, thanks for coming out guys.


Talk about the blind leading the blind – after looking for +3-4% US Growth (depending on when you asked them for a US GDP Growth estimate last year), the World Bank is cutting their US Growth estimate from 2.9% to 2.2% this morning.


At the same time, we’re taking our US Growth estimates up…


Rather than Playing Blind from a Growth and Inflation modeling perspective, we actually have our own models that actually work. They don’t work all of the time. But they worked in calling both turns - in both Growth and Inflation - in both 2008 and 2011.


The same models that had us turn bullish (versus consensus expectations) on Growth in early 2009, have us getting bullish, on the margin, on Growth in 2012.



  1. US Dollar Strength = Deflates The Inflation
  2. Deflating The Inflation = higher real (adjusted for inflation) Growth

I’m often blind to my own blindness. But I’m not blind to what our models are telling me. Rather than debate the obvious implied by a broken consensus source code, I’ll just call building a Washington Consensus out for what it is – it’s what group-thinkers do.


My immediate-term support and resistance ranges for Gold, Oil (Brent), EUR/USD, US Dollar Index, and the SP500 are now $1, $110.10-$112.17, $1.26-1.29, $80.24-81.77, and 1, respectively.


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Playing Blind - 1. EL EUR


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