I was playing catch with my great-nephew, Bryson, over the weekend. He is just two years old and is a charmer. As we tossed the ball back and forth, he caught it and threw it back on target more times than he missed.
His grandpa coached from the sidelines: "Watch the ball, Bryson"…"Keep your eye on the ball, son." He only seemed to really miss when the distractions around the room pulled his attention away from the rubber ball.
This weekend the American Women's soccer team captured its third World Championship. Carli Lloyd kicked in three goals in the span of 16 minutes, the fastest playoff hat trick in soccer history- men's or women's.
And Hope Solo has to be best goalie in the world today, as she demonstrated with an incredible save in the first few minutes of the Final's game with Japan yesterday. This followed five straight shutouts in the previous games (540 minutes without conceding a goal!).
Just watching the women play, it's obvious that they had been coached from early on to keep their eye on the ball. Each player, regardless of position, was intensely focused on the ball. It could have been half a field ahead of them, skimming across the ground toward them, or poised just inches from their foot, and in every case their gaze was concentrated only on the ball.
It's a skill every baseball player, tennis player, golfer and, yes, soccer player learns early on, and it is absolutely critical to success. In 2011 and 2012, two academic studies reinforced the well-worn axiom to "keep one's eye on the ball."
In the first, reported in Cognitive Processing, soccer players making penalty kicks were taught to take one quick look at the chosen corner and then spend extra time focusing on the ball rather than their target. The result was improved accuracy and a 50% reduction in blocked attempts.
The next year an English study applied this gaze focusing "Quiet Eye" technique to golf. The study divided a group of recreational golfers into two classes. One was taught improved techniques of putting. The other was taught the "Quiet Eye" technique of briefly looking at the target and then spending extra time staring intently at the ball.
The "Quiet Eye" group showed the most improvement. They were more accurate, had lower heart rates and less muscle-twitchiness, demonstrating reduced performance anxiety.
Dr. Wilson, the author of the study reported in Psychophysiology, says that the tight focus on the ball "blunts distracting mental chatter and allows the brain 'to process the aiming information you just gathered' and direct the body in the proper motions to get the ball where you wish it to go. A quiet, focused eye, in other words, seems to encourage a quiet, focused mind, which then makes for more accurate putting." NY Times, "Keeping Your Eye on the Ball", Gretchen Reynolds, 11/28/2012.
Sports are not the only place where keeping your eye on the ball matters. In a Harvard Business Review article entitled "Ten Reasons Winners Keep Winning, Aside from Skill," author Rosabeth Moss Kanter named reason number four "Freedom to Focus." As she explained, "As every golfer and tennis player knows, you must keep your eye on the ball. Losers often punish themselves in their heads. Winners have fewer distractions. Golf pro Tiger Woods won nearly every championship until hit with personal problems of his own making, which was followed by losses on the golf course."
Focus is equally important in the financial markets. The last two weeks have been a great example of what happens when we take our eye off the ball. Terrorist warnings, holiday preparations, speculation on an impending rate increase have all taken investor minds off of what is really important - the progress in the economic recovery, inflation, interest rates, and company earnings.
Of course, as has often been the case for the last few years, Greece has bubbled to the top of the financial market cauldron to draw the world's attention away from the more important ingredients of the market stew being served up to investors. First the new Greek administration and now that country's voters have tasted and then spit out the European Union's latest offering.
The Greek people now must experience weeks, and perhaps months, of uncertainty. The inaction will certainly aggravate the already tenuous employment and economic situation in that country. This is the nature of budgetary excess. It always ends the same way, whether with an individual, company, city, state, or country; eventually you only have limited choices and they are all bad. That is, bad in the sense that they all incur pain and costs that few anticipate while the overspending is occurring.
At the same time, the Greek economy is of little importance on the world stage. The country has a GDP the size of the state of Connecticut, less than that of Louisiana.
The fear is (as it was the last several times this issue erupted) that the Greek illness will spread to other over-indebted EU members, like Portugal and Italy. They not only have larger economies, but their decline could greatly exacerbate the slowdown being experienced in much of Europe. Will this fear be realized this time around?
I don't think so. The economies in Europe are stronger than they were during the last round of Greekomania. And the European Central Bank has finally stepped into a leadership role that it seemed reluctant to accept the last time Greece was front and center. It has its act together and has shown a willingness to follow America's lead in utilizing the expansionary powers of Quantitative Easing.
The latest crisis does run the risk that any resulting decline in Europe or rise in uncertainty will fuel further gains in the US Dollar vis-à-vis the Euro. This will continue to hurt US manufacturing in its international sales.
However, the frank truth is that US manufacturing contributes just 16% of total US output, while agriculture and services contribute the much larger balance. In addition, the weakness in Europe and the Euro will continue to put downward pressure on the price of oil, and the benefits of that are felt throughout all of the US economy.
In addition, as I have argued in the past, a rising US Dollar, falling prices, and a weakening manufacturing sector provide cover for the Federal Reserve to delay its expressed desire to raise interest rates. The current uncertainty is yet another reason why such a rate increase seems likely not to occur this summer and increases the odds that they will not occur until next year.
Still, whether the Fed acts or not, it cannot be denied that interest rates are rising. As I have said in the past, it is usually the market rather than the Fed that dictates such a move. Often the Fed is the last to know. Yet as the chart demonstrates, the markets have already decisively moved rates (yields) higher, sending bond prices lower.
Source: Bespoke Investment Group
It does appear that, looking at the chart closely, one can discern that one of the benefits of the crisis has been to send investors scurrying for the safety of Treasuries, causing the rate increase and bond price decrease to pause for a week or so. Normally that would be positive for stocks.
Rather than be distracted by Greece, our focus should instead be on the quarterly earnings reports that are about to begin. They will determine whether stock valuations are too high or too low. If the multi-year expansion continues, stocks are likely to continue their gains as well.
As always, the ultimate target of our attention has to be on the intermediate-term trend. While I continue to believe that the present uncertainty can take us into a brief correction, the trend remains positive and suggestive of higher prices ultimately between now and year's end.
Of course, while humans need to be coached to keep their eye on the ball, computers never take their attention off of the facts that they have been programmed to view as important. Quantitative strategies monitored by them seek to relate the small details and the big picture to produce the strategy with the highest probability for success. They have been programed to always keep their eye on the ball.
As Dr. Wilson, the author of the English golfing study says, "It seems so obvious. It is almost too simple. People assume that they are doing all of this already. 'You mean I should look at the ball?' Duh!"
But, he concludes, "The fact is that many people do not look at the right place at the right time."
How about you?
All the best,
Jerry