How Weak Social Mood Is Materially Impacting Events in Ukraine

By Peter Atwater  MAR 27, 2014 9:30 AM

History repeatedly shows what happens when an aggressive nationalist leader comes to the fore during a period of weak social mood and his actions are met with a limp, isolationist global response.

 


Ahead of the Olympics, I cautioned that there was a very high risk of violence at the Games in Sochi due to the profound decline in confidence I observed in Russia and many of its former satellite states. Severe drops in social mood routinely trigger acts of violence, and after three years of falling mood, the conditions appeared ripe for significant social unrest or terrorism. 

In hindsight I underestimated the extreme nature of the situation. Rather than terrorism at the Games, what we have witnessed over the past month has been far more troubling, as Russia has moved to annex Crimea and now threatens east Ukraine. What's more, as is typical during periods of profound weak social mood, popular sentiment toward Russian leadership has surged in response. Russian President Vladimir Putin's approval rating has skyrocketed since the Kremlin got approval to send troops to Ukraine, jumping by nearly 10% in less than a month to 71.6%, the highest level in three years, according to the All-Russian Center for Public Opinion Research. The strong local popularity of a highly nationalist leader taking aggressive action at the bottom of social mood fills our history books; and based on the movement of the Russian equity markets last week, confidence in that country is now rising sharply.

At the same time, it's worth considering how social mood is impacting the global response. Thanks to weak confidence on Main Street here in the United States and across Europe, there has been no decisive, collective, or coherent response. Rather than speaking with a unified voice about a unified solution, national leaders are taking a "not in my backyard" approach to the situation in Ukraine, suggesting that other nations take the lead with sanctions. Last week, the Wall Street Journal reported, for example, that "UK Foreign Minister William Hague called on the EU to suspend military exports to Russia -- a measure that would compel France to freeze a €1.4 billion contract to deliver the first of two warships to the Russian Navy by the end of this year. France shot back with a demand that UK banks seize or freeze assets of Russian oligarchs held in UK banks. Paris is also pushing Germany and other countries to cut back on Russian gas."

Based on weak social mood, national leaders' response shouldn't be a surprise. When confidence is low, self-interest and local needs -- what I call "me, here, now" priorities -- trump regional, let alone global concerns. Voters don't want to sacrifice for the greater good. As a recent Pew Research Center survey reported, by about a two-to-one margin (56% vs. 29%), the American public said that it was more important for the United States to minimize its involvement in Ukraine than to take a firm stance against Russia. William Gaslton noted in the Wall Street Journal last week, "If the people do not believe we are strong at home, they will be reluctant to support a policy of strength abroad."

Not surprisingly, the actions to date by the White House and Congress, as well as most European leaders, reflect this very clear "me, here, now" weak confidence-driven sense of priority.

Unfortunately, history repeatedly shows what happens when an aggressive nationalist leader comes to the fore during a period of weak social mood and his actions are met with a limp, isolationist global response. Given the social mood dynamics at play today, it would be no surprise to see Mr. Putin further emboldened by both his own nation's strong local encouragement coupled with global leaders' lackluster reaction. Local affirmation and the absence of meaningful global consequences will almost certainly bolster him to take further action. Given current global social mood, additional annexation accompanied by greater involvement of the Russian military appears inevitable.

To turn the tide, European and American leaders must take actions that run counter to their own individual and national interests. Leaders must recommend local sacrifice for the greater good. While I would like to be encouraging on this front, what we have seen so far does not provide much hope. The situation in Ukraine may have to get much, much worse before European and American leaders are prepared to act. Voters across Europe and the United States may have to first see a clear threat before they prompt policymakers to respond decisively.

To those expecting a quick and rapidly resolved crisis, the current social mood setup suggests something far more severe and protracted. The profound decline in Russian confidence is unlike anything we have seen in a very long time; and, accompanied by a decade-long decline in confidence in Europe and the United States, there is little hope of a speedy outcome. Unless we see a sharp rise in confidence in the West, what began in Crimea recently is likely to be with us for years to come.

Social mood drives our preferences, decisions, and actions. What we are now witnessing across Eastern Europe today shows just how true this is.

Peter Atwater's groundbreaking book "Moods and Markets" is now available on Amazon and Barnes & Noble.
 
"Peter Atwater brilliantly provides a framework for understanding both the socioeconomic hubris that led to the great credit bubble of the past decade and the dark social-psychological hangover that has resulted from its collapse. In so doing, he offers an invaluable guide to what promises to be a very difficult and turbulent period ahead as we experience what he calls the 'me, here, and now' behavioral tendencies of the post-crash world."  -Sherle R. Schwenninger, Director, Economic Growth Program, New America Foundation


Twitter: @Peter_Atwater
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