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One of the phenomena that behavioral economists and psychologists have identified as being part of our decision making process is happening now. The perils of complexity refers to the phenomena where the more complex a decision the more we fall back on simplistic solutions.
In the case of Greece, the number of variables, parties involved and lack of precedents has resulted in the market saying in effect " This is too hard to figure out so I'm just going to wait until it is easier to quantify, then I'll re-price the risk"
Meanwhile Germany is exhibiting the classic signs of an employer who really wants an employee to quit, but doesn't want to pay severance. Over the last few weeks Germany has progressively increased the cost to Greece of staying in the EU by introducing tougher conditionality for any release of funds. Germany wants Greece to leave so that it can redeploy the funds where it is less likely to be a money sinkhole. But they want the process to be sufficiently drawn out that the market has time to adjust. In this regard they are mostly succeeding. We now have Dutch EU Commissioners openly talking about Greece leaving the EU and the market doesn't even blink.
However the market has not priced in the risk because it is too complex. If Greece leaves, as I now think they will, there will be a re-pricing of risk. It will not be a Lehman event, but it should be the catalyst for at least a modest (2-5 %) correction.
I am happy to join with you today in what will go down in history as the greatest demonstration for freedom in the history of Slope.
Five years ago, a great American, in whose symbolic shadow we stand today, began shorting the market. This momentous decree came as a great beacon light of hope to millions of bears who had been seared in the flames of withering injustice. It came as a joyous daybreak to end the long night of their captivity.
If you're like most Americans, you hadn't heard of James Stockdale until he showed up for the 1992 Vice Presidential debates and made this famous line:
Afterwards, he became the butt of jokes and was basically portrayed as a dottering old man. He and Ross Perot captured nearly 20% of the vote, in spite of being a third party ticket, and the nation soon stopped talking about Admiral Stockdale.
I hadn't thought of him for years, but last night I happened to trip across an article about the man, and I was amazed. He suffered through unspeakable horrors as a prisoner of war and, in all that time, he showed strength, resolve, and character that I imagine 99.9999% of the population lack. The guy had brass balls, pure and simple, and he was awarded the Medal of Honor for his courage.
Read on:
Stockdale was held as a prisoner of war in the Hoa Lo prison for the next seven years. Locked in leg irons in a bath stall, he was routinely tortured and beaten. When told by his captors that he was to be paraded in public, Stockdale slit his scalp with a razor to purposely disfigure himself so that his captors could not use him as propaganda. When they covered his head with a hat, he beat himself with a stool until his face was swollen beyond recognition. When Stockdale was discovered with information that could implicate his friends' "black activities", he slit his wrists so they could not torture him into confession.
One can only imagine fellow VP-debate-participant Dan Quayle's behavior in such a circumstance. Once they mussed his hair, it would probably be all over. To continue:
Stockdale was part of a group of about eleven prisoners known as the "Alcatraz Gang": George Thomas Coker, George McKnight, Jeremiah Denton, Harry Jenkins, Sam Johnson, James Mulligan, Howard Rutledge, Robert Shumaker, Ronald Storz and Nels Tanner; which was separated from other captives and placed in solitary confinement for their leadership in resisting their captors. "Alcatraz" was a special facility in a courtyard behind the North Vietnamese Ministry of National Defense, located about one mile away from Hoa Lo Prison. In Alcatraz, each of the eleven men were kept in solitary confinement in cells measuring 3 feet by 9 feet with a light bulb which was kept on around the clock. The men were locked in leg irons each night
What amazed me the most is what Stockdale said in reflection:
"I never lost faith in the end of the story, I never doubted not only that I would get out, but also that I would prevail in the end and turn the experience into the defining event of my life, which, in retrospect, I would not trade."
Now here's the important part……when asked about who died during captivity, he replied:
"Oh, that's easy, the optimists. Oh, they were the ones who said, 'We're going to be out by Christmas.' And Christmas would come, and Christmas would go. Then they'd say, 'We're going to be out by Easter.' And Easter would come, and Easter would go. And then Thanksgiving, and then it would be Christmas again. And they died of a broken heart."
And then, finally, the most important part of all, which you might want to read ten times to yourself:
"This is a very important lesson. You must never confuse faith that you will prevail in the end—which you can never afford to lose—with the discipline to confront the most brutal facts of your current reality, whatever they might be."
I hope the departed Admiral will forgive me for using his words as an inspiration for traders – – or anyone undergoing a challenge – – but these are some of the most inspiring words I've ever read.
Thank you, Admiral Stockdale, for everything you did. I promise that those old jokes tossed around in the 1990s about you are no longer funny anymore. You were a great man.
Oh, and just to add icing to the cake. His name was James Bond Stockdale.
I want to break a myth I see portrayed everyday in the media. The myth of “These people know what they are talking about.” Trust me, they do no not. But unlike most when I make such an accusation I am not being flippant. Let me give you a real life first hand example on why things are the way they seem, and why these so-called “evil people” are not putting money to work in the economy.
It’s very hard for most to truly understand just how far-reaching some innocuous regulation is or can become because it makes for such a great sound bite. i.e.: “If you’re not for it, then you must want polluted water that kills women and children.” So let’s cut through this crap perpetrated by the requisite debate teams and I’ll put just one tiny little face on a monster of an issue.
