Why Kim Kardashian Matters to the Stock Market
Understanding social mood as a leading indicator of risk appetites.
I’m not talking about one-off suggestions. I’m not talking about a ban on assault rifles or testing for mental illness or child safety precautions. This is not a political discussion. This is through a broader lens, and understanding the fundamental differences between socionomics and socioeconomics. Socioeconomics posits that the economy drives social mood, whereas socionomics argues that social mood drives financial, economic, and political behavior.
So here we are, late April 2013, and the markets are trading near or at all-time highs, and you have a lot of fund managers and money managers out there who are looking at corporate balance sheets, which are quite healthy by any measure, and they’re convinced that the Greenspan put has turned into a Bernanke call, and there’s no stopping the upside. It’s seemingly as if there’s uniform belief that the market is going higher, and subject to change, but as I’m sitting here on April 29 and recording this, the market can do no wrong.
We could note, or we should note, that this type of optimism, this type of behavior in the financial markets, has been created by the same policies that have been in play for some time, and that’s shifting risk from one perception to another. And as a function of that, in my opinion, the chasm between a stock market rally and a legitimate economic recovery is becoming increasingly apparent.
In a bifurcated world, with the haves and the have-nots, there are a lot of different ways to look at it, but for most people, it doesn’t feel like we’re at all-time highs, much like the interview we did in December of 2006. But policymakers, politicians and the like, they’ll take solace in the fact that the markets are at all-time highs, the housing market has seemingly bottomed. That employment, or at least the method in which it’s measured, is moving in the right direction. They’ll look at things like AIG (NYSE:AIG) and say, look, we made money and all is well, kumbaya.
Listen, more power to them. I hope that’s the case. As a father, I hope that the better days are ahead of us. But there are questions that remain that are not being discussed that have massive implications, not only for us but for our children. They relate directly to consequences, the social consequences of policy and the direction in which we’re going, and its social mood that dictates the price of financial assets.
When does this dynamic come home to roost? When will it express itself through the world’s largest, if not entirely free thermometer, that is the stock market? We’ve all seen the societal acrimony and the social unrest, unfortunately, but what’s the third phase look like? What does that mean to us? What does that mean to our kids? I don’t know. Those are three words that I’m fond of because they sum up a lot: I don’t know. I’m not smart enough to know when this will come home to roost, or if it will come home to roost, for that matter.
But I do believe that what goes around comes around, and for every action, there’s an equal and possibly larger reaction, and I think we would be wise to respect the unexpected. Oftentimes I’m asked, “How does this period in your opinion relate to the Great Depression?” And I always say that it I think it’s entirely more profound — that FDR did not know what a derivative was. So, it’s a much more complicated, interconnected world that we live in, and there’s no easy solutions, I think, which is one of the reasons why we keep seeing the same repeated behavior, which we’ll continue to see most likely until it doesn’t work.
Peter Atwater, a writer at Minaynville and the President and CEO of Financial Insyghts, who is just a tremendous thinker, posed a few questions a couple years back that are really quite profound. At what point does an industrialist become a robber baron, or a savvy speculator a profiteer? At what point does success become privilege? And I bring these up now because the answers to these questions have profound implications for the future of free-market capitalism, particularly given the quadrillion dollars’ worth of derivatives on a notional basis that’s tying the global economy together. And if calmer heads don’t prevail, then ultimately, our trading performance, our investment performance might pale in comparison to some of the other ramifications that seem to be on the horizon.
But let's fast forward a bit. Let’s move on to 2012 and some of the social sets that I look at or have looked at, as we continue to find our way, whether it’s Joe Paterno or Twinkies, as absurd as that may seem, or Elmo or Lance Armstrong — all icons, longstanding icons that have fallen from grace or otherwise come upon hard times, and as we move on, whether it’s Anne Hathaway or Kim Kardashian or House of Cards. You can see how social mood is starting to wrap itself around American society again. The zombies as a cultural icon — I mean, what does that tell you? Or Blade Runner? These are all significant shifts in the social significance of all of these different elements that in my opinion, whether it’s Manti Te'o or A-Rod — you can go down the list, but I think it bears repeating.
I’ll tie it up by looking at a chart of the S&P 500 index from 1995 to 2013, and we’ve all seen this chart, or at least you should have seen this chart by now. But it’s a repeated pattern of behavior where investors get punished at the top and savers get screwed at the bottom, and we’ve seen it over and over again. And as I sit here again on April 29, 2013, the market is peaking through these levels and trading at all-time highs, which is undoubtedly going to bring through a new rash of speculation and that the worst is behind us.
But as we look at the markets — and we respect the price action, of course — the price action in my view is the ultimate arbiter of variant views. So you could be bearish or you could be bullish, but at the end of the day, you gotta trade the market that we have, not the market that we want; and the market that we have is trading at all-time highs.
But let’s not just take that on its face. Let’s look around us. Let’s pay attention to some of the things that are happening, some of the social icons, some of the social elements that in my opinion are a precursor to the price action, not a result of the price action.
In sum, and in tying this up, and out of respect for your time, I’ve listed 12 cognitive biases that I’ve found have endangered investors, or at least in my opinion have endangered my investments over the course of my 23 some-odd years of trading, and they’re listed here for your review.
And with that, I will simply say that I appreciate your time. Thank you for spending this time with me, and I wish you and your families and your friends nothing but the very best of times ahead. Thank you very much.
Twitter: @Minyanville and @todd_harrison
Editor's Note: Todd posts his vibes in real time each day on our Buzz & Banter
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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