Why Kim Kardashian Matters to the Stock Market
Understanding social mood as a leading indicator of risk appetites.
And so, fast-forward a bit, 2010, to look at Tiger Woods, Ben Roethlisberger, and Jesse James - this was during a period in American history when there were just a lot of people who were really pissed off and angry. And this societal acrimony, as we came to call it, really started to percolate between the haves and the have-nots and the red states and the blue states, Main Street versus Wall Street. It was pick a side or stand aside. But when you looked at these high-profile icons, whether it's Tiger Woods, who probably stood out above the rest, it started to suggest that the socionomic tide was starting to turn once again, right? I mean, that's what I thought. That was my gut at the time. And sure enough, it wasn't that easy.
The policies that were put in place after the first phase of the financial crisis started to kick in. The social mood was turning lower; the markets - or the free markets, I should say - would presumably follow it down. But there were a lot of synthetic reasons why the market didn't trade lower. It is what it is; you trade the market you have, not the market you want. This was 2011. The market could have gone down - I won't say should have gone down, because the market's always right - but the market didn't go down, and I think that you could have learned a lot just from watching that.
So, the new world order started to take shape, and that new world order is familiar to anybody who follows the markets with any repetition. It seems to repeat in the same sort of process, a circular process, that seems to continue. As the market sells off and the outlook deteriorates, people get a little bit more bearish. The policymakers spring into action, the markets rally. All of a sudden things are getting better. The policymakers back off, the markets sell off, and around and around we go, and we continue to go, as I sit here and talk about this in late April of 2013.
In my opinion, and this is one man's humble opinion, in 2008 there was a fork in the road. There were two ways we could have gone in response to the first phase of the financial crisis: There was the medicine that cured the disease, in my opinion, which is debt destruction; and there were the drugs that masked the symptoms, which was the accumulation of more debt, or the same type of behavior that got us into this problem in the first place - the idea that we could continue with this behavior at an accelerated pace, and somehow it would solve the problem.
But that is neither here nor there. We all know what path we took. The first path would have been deflation and it would have been a bitter pill. Asset classes would have remained under pressure. The debt would have been destroyed. The strongest would have survived. Asset classes, as we said, would have taken it on the chin. The dollar would have rallied. A lot of folks were in debt and they would have had to repay that debt in dollars, which would create demand for more dollars, and once the debt settled, we'd see this outside-in globalization, "outside-in" meaning the US doesn't necessarily have to lead this recovery, we could have participated in the recovery, and do so with some class, for lack of a better word. We could have been part in the solution rather than feeling that we needed to lead the recovery, so to speak.
But that isn't what happened. It's hard to say what would have happened. By definition, decisions that are made in the heat of a crisis are rarely well-thought-out. But sure enough, we continued to give the markets more drugs, another drink, whatever analogy you want to use. The stock market is at all-time highs. The dollar has not declined, as one might expect, due in large part to the problems in Europe.
But the takeaway - and I'm not here to weigh in on policy, but more to observe the ramifications of that policy, and that's what this presentation is supposed to be about - is the friction that has emerged in this bifurcated world and how that's manifested through social mood as a consequence of policy.
We at Minyanville tend to look at things such as unintended consequences and moral hazard because they're not the types of headlines that you hear covered very often. But they do matter in our everyday lives, and they matter in terms of the forward path that we're going to pave and the world that we're going to leave for our children. I remember with clarity back in 2005, 2006, when we were at the Minyans and the Mountains events in Ojai, California, and Vail, Colorado, respectively, and we talked about this notion of societal acrimony and the potential ramifications that it would have for us.
Todd Harrison is the founder and Chief Executive Officer of Minyanville. Prior to his current role, Mr. Harrison was President and head trader at a $400 million dollar New York-based hedge fund. Todd welcomes your comments and/or feedback at firstname.lastname@example.org.
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