Natural Laziness

“Laziness is built deep into our nature.”

-Daniel Kahneman

Chapters 2 and 3 in Dan Kahneman’s “Thinking, Fast and Slow” are linked by laziness. I loved it – the author really forces you to ask yourself if you really know what you don’t know.

“Highly intelligent individuals need less effort to solve the same problems, as indicated by both pupil size and brain activity. A general “law of least effort” applies to cognitive as well as physical exertion. The law asserts that if there are several ways of achieving the same goal, people will eventually gravitate to the least demanding course of action.” (page 35)

Most people in our profession are, from an academic achievement perspective, considered “highly intelligent.” Odds are that if you are a Buy-Sider paying a Sell-Side desk a commission, the Sell-Sider might even call you “really smart.”

Really? How really smart is smart? Collectively, the Old Wall’s Consensus on Global Macro risk management issues hasn’t been smart for the last 3-5 years. It’s been lazy.

Let’s take, for instance, this newly wedded concept the Street has to “Risk On” versus “Risk Off.” The entire premise of that idea is just lazy. While it may provide a framework for people to talk about risk with the least demanding course of thought or action, it doesn’t change the fact that risk is always on.

Back to the Global Macro Grind

Risk also works both ways. The #1 risk we have been beating on so far in 2012 is not Greece. It’s Global Growth. And the “risk” on Growth Expectations is to the upside.

Unless you’ve been living under a rock for the last 3 years, you’re aware the Greeks have more issues than Time Magazine. Last year alone, the Greek stock market crashed by another -51.9%. This morning, Greece is down -2.5% (and the manic media can’t find anything else to talk about but Romney’s taxes), but that doesn’t mean that the rest of the globally interconnected world ceases to exist.

Here’s how we think about the Natural Laziness of getting lulled into yesterday’s news: Market Prices Rule.

What I mean by that is that if you look at what the construct of real-time market price, volume, and volatility signals are telling you within a time horizon that’s Duration Agnostic, you can up the probability of not getting caught off-sides by consensus.

Across all 3 risk management durations in our model (TRADE/TREND/TAIL), here’s how Greece’s General Share Index looks:

  1. Immediate-term TRADE support = 669 (bullish breakout)
  2. Intermediate-term TREND support = 708 (bullish and holding that new support)
  3. Long-term TAIL resistance = 1109 (bearish)

Ok. Makes sense right? But maybe it only does because I just gave you a short-cut to think about risk within the context of the short, intermediate, and long terms. Is that good enough? Do you have an alternative process that’s better? How can we evolve it?

These are all questions that I encourage my team to push me on each and every day. Question the premise of the assumptions, particularly when our investment positioning is wrong. The market always knows something.

For now, only people who are short Greek stocks in 2012 can assure you of what the wrong position has been. Inclusive of today’s -2.5% selloff, Greece is still up +6.5% for 2012 YTD, beating the SP500 by 1.8% (1316). Who would have thunk?

In other globally interconnected news, Japan popped right back onto our risk management radar this morning with the following:

  1. Japan will not meet its top-line (GDP Growth) goals, again
  2. Japan will not meet its bottom-line (deficit) goals, again
  3. Japan is becoming increasingly annoyed with their failed Keynesian Experiment

How’s that money printing + fiscal “stimulus” model treating the old boy network in Tokyo?

Now if Japan didn’t have to roll over 31% of its debt in 2012, we might brush off what’s happening in one of the world’s Top 3 economies like Newt is trying to side-step his Freddie Mac compensation. But, we’re not dumb enough on the math to try that yet. We’re talking about rolling over 231 TRILLION Yens in debt ($3T USDs). Even by Fiat Fool standards, that’s a lot of Yens!

Relative to the US Dollar, the Japanese Yen, naturally, is down this morning on that “news.” As to why the Old Wall’s Consensus didn’t list a Japanese Sovereign Debt Crisis as part of their 2012 “biggest surprises”, we’ll just have to chalk that up to Natural Laziness too.

My immediate-term support and resistance ranges for Gold, Oil (Brent), EUR/USD, US Dollar Index, Nikkei225, and the SP500 are now $1, $109.31-111.26, $1.28.1.30, $79.63-80.44, 8, and 1, respectively.

Best of luck out there today,

KM

Keith R. McCullough
Chief Executive Officer

Natural Laziness - 1. Athex

Natural Laziness - 1. VP Heut