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What Are the World's Headline Writers Inadvertently Telling Us About This Market?

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A real-time assessment of social mood -- and what it means for the markets -- based on the last three days of news reports.

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As a socionomist, I spend a lot of time looking at news reports. What happens in the world around us and what specific stories the media chooses to focus on says a lot about our current level of social mood. As I discuss in my book Moods and Markets, changes in mood drive changes in our underlying level of confidence and, in turn, what we prefer and our choices and actions. What few investors appreciate, though, is how transcendent changes in social mood really are. What influences our decisions to buy and sell stocks are the same factors that influence what we say on Twitter, the headlines we read in newspapers, and the actions around us in business, politics, and even culture.

Using news reports from the past seventy-two hours, I thought I would offer a real-time assessment of where I think current social mood is and then offer what I think it means for the markets.

Yesterday, Bank of America (NYSE:BAC) reached an $11.6 billion settlement with Fannie Mae (OTC:FNMA), ten US banks reached an $8.5 billion agreement with bank regulators to settle charges of foreclosure abuses, and the NHL reached an agreement to end a four-month lockout.

Now it would be easy to suggest that the first two merely represent banks' kitchen-sinking their 2012 fourth-quarter earnings in a desire to boost 2013 results. But in combination with the NHL strike, I'd offer that there is even more happening here, especially coming on the heels of last week's "voluntary" anti-trust settlement by Google (NASDAQ:GOOG) with the Justice Department.

Settlements, whether in hockey or with regulators, all reflect generosity and a willingness to compromise. None of these agreements had to happen right here or right now, yet they all did. In each case, both sides had to give in order for these to happen. Adversaries had to find common ground. While there is no doubt that tough negotiations took place, folks finally found agreement somewhere in the middle.

But note, too, the coverage of the settlements themselves. Google's anti-trust settlement was seen as a wrist slap (with Google's behavior characterized as somewhere between "aggressive" and "evil" by James Stewart in the New York Times) and the editorial team at the Wall Street Journal suggested that Monday's foreclosure settlements represented "shakedowns." These are high confidence reactions, which suggest either regulatory weakness or overreaching. If mood were lower, not only would the punishments have been harsher, but the reaction would have been that the punishments weren't severe enough. (And while on the topic of reactions, I'd also note how little uproar Frank Partnoy and Jesse Eisinger's cover story last week on bank balance sheets in The Atlantic received. Rather than outrage, the response to their excellent investigative reporting has been more like, "So what else is new?")

If you had picked up yesterday's Wall Street Journal, you would have seen that it was not just bankers, regulators, and NFL owners and players focused on compromise solutions somewhere in the middle. On the political front, Neil King Jr. offered two stories in the Wall Street Journal focused on current issues in the Republican Party, noting in the first that former Florida governor Jeb Bush may be "the ideal person to widen the [Republican] Party's message, while expanding its reach," and in the second story highlighting a potential gubernatorial run by Virginia Lieutenant Governor Bill Bolling. Per Mr. King, Mr. Bolling is considering an independent run, fueling concern among conservative Republicans that this could "wound the GOP as it seeks to broaden its reach among independent voters in a state where Democrats have made big gains."

That two moderate Republicans – particularly a "dynastic" personality like Mr. Bush – are now making news is yet another indicator of high confidence. Politicians only move to the center when confidence is high. (And to consider what this looks like at the opposite end of the mood spectrum, here is what I offered last May on the Greek elections, just as social mood was bottoming.)
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Position in SH and JPM.
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