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Todd Harrison Interviews Robert Prechter: 'When Social Mood Turns, the Fundamentals Will Follow'

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Ahead of the Social Mood conference in Atlanta, the market analyst who invented socionomics explains how his theories are playing out in today's "long top" market.

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Editor's note: Next month, the Socionomics Institute will host the Social Mood Conference in Atlanta, Georgia. Speakers scheduled for this year's event include the institute's founder Robert Prechter, famous for developing the socionomic theory of finance, and Minyanville's Todd Harrison. Last week, Robert Prechter joined Todd Harrison for an exclusive webcast focused on exploring the role of social mood in history and how it continues to drive market trends. The following is a transcript of that webcast.

Todd Harrison: Welcome, everybody -- and thank you -- to this special edition of the Minyanville Fireside Chat. I'm here with a man who really needs no introduction: Bob Prechter is a gentleman whom I have a huge amount of respect for. I think he's a trailblazer in terms of how we think about things and how we can apply that thought not only across the financial markets, but across the socionomic landscape. It is a train of thought that I've actually practiced for quite some time without knowing that it was a different way of thinking, which shouldn't come as a shock to anybody -- that I like to think a little bit differently.

Bob-Mr. Prechter, or Bob, is the man behind Elliott Wave. He's the author of According to Wikipedia, 14 books and just an all-around forward-thinker who we're very happy to have here in Minyanville. Bob, welcome to the Fireside Chat. Thank you for your time today.

Bob Prechter: It's nice to be on a program called Fireside Chat. Usually they're putting my feet to the fire, so maybe this will be a little different.

TH: It might be a little different. I can't promise you. We're taking questions from the audience, so I'll do what I can, but I'm not worried. So, just to set the context we're going to drill down into a lot of particulars because that's why people-and we have a record amount of people here today-they want particulars, but, please, just as a starter, can you talk a little bit about-briefly-about the Socionomics Institute, how you got into this field of study and research, social mood and just a little bit of background for people who may be unfamiliar with your work?



BP: Well, something you just said really resonated with me, which is that you've been thinking this way a long time. The first time I wrote down some socionomic ideas was 1979. And I thought a lot of analysts in the market must be thinking this way and believing that the market had a mind of its own apart from the so-called fundamentals, economic events, political events, and so on, because you could look back through history and you couldn't find any of those on the chart. None of the dramatic moves were associated with any particular type of event, whether it be rising oil prices or falling oil prices or speeches by senators or even economic events that were special. And when they were correlated the market was ahead of them. So, something was driving the market in front of the economy.

So, I began to study the charts of the market and realized that they also seemed to correlate with some more interesting things, such as taste in music and the fashions that people were wearing. And slowly it dawned on me that there was something independent about what was driving the market. And it was also driving other expressions of something that I finally designated as social mood. I think social mood waxes positive, turns negatively. And when it takes a direction it changes the events that are occurring in response, so that when people feel in a more positive mood they do a number of things all the same way. They buy more stocks because they're more optimistic. They're a little more productive, so the economy improves. They wear flashier clothes. They listen to happier pop music and things like that.

When the trend is on the downside you get the opposite type of behavior, and it manifests in what you end up reading in the newspaper. For example, when the trend is up readers and corporations are heroes, and when the trend is down, you get corporate scandals left and right. When the trend was up in the '80s and '90s, people were very tolerant, for example, with immigrants. And since the high it's been more and more passing laws about we need to send them back home and this is a terrible scourge and everything else. Those are strictly a reflection of the social move. Nothing changed underneath, so the fundamentals are really not causal. They are results based on-socionomics and about what got me started on the Institute.
No positions in stocks mentioned.

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 todd@minyanville.com.

The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

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