The Short-Sale of American Icons

By Todd Harrison  NOV 20, 2012 9:13 AM

Social mood will play a major part in this market movie.



Editor's Note: Todd posts his vibes in real time each day on our Buzz & Banter.

Once upon a time you dressed so fine, you threw the bums a dime in your prime, didn’t you?
--Bob Dylan 

The leaders coming out of a crisis are rarely the same as those who enter it.  That’s true for corporate America and it applies to those high up on the societal pedestal. 

In the summer of 2007, Minyanville openly asked if the fall from grace of well-known icons such as Paris Hilton, Lindsay Lohan, and Britney Spears was indicative of the shifting social mood, and by extension, whether it might be predictive for financial markets. 

The notion seems silly on its face; the obsession with the whereabouts of a trio of social starlets couldn’t be further removed from the inner-workings of Wall Street.  We posited the question, however, as social mood and risk appetites shape financial markets, and sure enough, the tape cascaded lower a few months later. 

American society is again disenfranchised.  It’s evident in the divide between the “haves” and “have nots,” the red states and blue states, and Main Street vs. Wall Street.  Moreover, the recent demise of high-profile icons—from Twinkies to Elmo to Lance Armstrong—suggests that the socionomic tide has turned anew. (See: Hostess and the GM Bailout: Why the Chevy Volt Shouldn't Exist but Twinkies Still Will.)

The Robin Hood Economy 

A few years ago, Professor Peter Atwater of Minyanville offered, “As we enter the New Year, I’d recommend that folks review their investment holdings with the growing wave of populism in mind. I anticipate that the phrase, “For those to whom much has been given, much is expected,” will take on new meaning.” (Also read The Robin Hood Economy.)

Who would have thought that in the following years, financial services, health care, and energy would all be considered “evil”?  From the bulls-eye on the back of “fat cat” bankers to tough talk on the beltway—remember when the White House vowed to keep a “boot on the neck of BP (NYSE:BP)?”—it’s hard not to notice the path of the wrath.

We long ago warned of the “tricky trifecta” of societal acrimony, social unrest, and geopolitical conflict.  Between Occupy Wall Street, The Tea Party, riots in Greece, and the specter of yet another war in the Middle East—not to mention the seismic shift in the European Union—it’s safe to say that we’re migrating across this most unfortunate spectrum.

At what point does an industrialist become a robber baron?  Or a savvy speculator a profiteer?  At what point does success become privilege? The answers to these questions have profound implications for the future of free-market capitalism in an intertwined finance-based global economy.  And if calmer heads don’t prevail, the bottom line might be the least of our concerns. 

One of the great misperceptions in financial market history is that the Crash of 1929 caused The Great Depression when The Great Depression actually caused the Crash.  While public psychology can be manipulated for extended periods of time, free will can never be caged and the attendant social mood will shape behavioral patterns—and by extension our financial decision-making processes. War and Peace 

There are certainly two sides to the current equation. The bulls will point to an upside window for equities given the strength in corporate credit, performance anxiety into year-end, and the most recent correction.  The bears will counter that the improvement in market fundamentals was discounted by the 100% lift off the 2009 low in a rally induced with drugs that masked the symptoms rather than medicine that cured the disease. 

Given financial markets have morphed into a matter of national security, we must respect the motivated agendas of central bankers around the world.  As the German Chancellor declared war on speculators and the Greek government hinted at legal recourse against stateside financial institutions, we would be wise to respect the unexpected and appreciate the unintended consequences that may follow. (See: The War on Capitalism.) 

There are alternative scenarios: On one side, debt destruction, asset class deflation, and an outside-in globalization once the dust settles.  On the other, we continue to give the global drunk another drink with hopes he doesn’t sober up.  The inevitable truth is that he one day will and our children will be forced to pick up the bar tab if we don’t change our ways, and soon. 

As we together find our way, the price action will serve as the ultimate arbiter of variant views, and the friction between opinions will shape the tape.  That’s why it’s important to understand the crosscurrents, respect the catalysts, and employ discipline over conviction during each and every step. (See: The Ten Trading Commandments.)

There’s no shame in admitting it’s hard; there’s only shame in pretending it’s not.  As we edge though this age of austerity, navigate the increasingly complex societal structure, and find our way to better days, I will simply offer that those who aspire to the lifestyles of the rich and famous should be careful for what they wish. 


Twitter: @todd_harrison

No positions in stocks mentioned.