Five Things You Need to Know: Social Mood Shift Brings Stark Changes
Kevin Depew's Five Things You Need to Know to stay ahead of the pack on Wall Street:
"I put some whiskey into my whiskey."
- The Felice Brothers, "Whiskey In My Whiskey"
This nugget, from the Felice Brothers, is not advisable. Not for ordinary, decent people anyway. What horrible, disastrous turn of events would even cause a person to think to put whiskey in their whiskey in the first place?
Oh we could speculate, sure. I could catalog a long list of likely whiskey and whiskey drinkers and their self-same tragic circumstances, from ancient pious panhandlers to racetrack touts, pimps, pushers, con artists and vagrants. But at this point wouldn't it be more prudent to just forget this whole whiskey and whiskey nonsense and admit that this lead was doomed from the start?
Yes, Lord help me, for I confess. It was a nakedly brazen attempt at trickery, a reckless stab at trying to escape composing a more thoughtful, structurally sound lead. But you know what? In a sense, it worked. Here we are three paragraphs in and it's too late to do anything but get to the point:
Conventional wisdom says there is always something to buy in a bear market and sell in a bull market; just be sure you aren't putting whiskey in your whiskey.
If the long-term deflationary thesis is correct, the point of recognition will result in the simultaneous decline of virtually all financial assets. Under those circumstances, shopping for bargains among the rubble is like trying to figure out which whiskey to add to your whiskey to your whiskey. Although we may have already arrived at this point of recognition it is still a difficult concept to grasp, especially given the length and magnitude of the secular bull market in social mood and, subsequently, financial assets, that brought us to this point.
Bear markets exist to “re-adjust” and re-price inflated assets. The conventional wisdom that there is always something to buy in a bear market and sell in a bull market, is indeed grounded in a nugget of truth: manias typically conclude with one asset extremely overvalued at the expense of another asset that is extremely undervalued. But this mania has created the overvaluation of all financial assets. So what is left that is undervalued? Intangible assets; relationships, time, quietude, reflection - objects/ideas that are difficult to define and whose value deflated in the mania of accumulation of all manner of consumables and financial assets.
But now social mood is shifting. As a consequence of that shift many intangible assets will be re-priced.
Socionomics is the study of social action that expresses social moods. It is counterintuitive. Most of us believe news events and outside actions cause changes in mood. Socionomics holds that no outside forces change trends and patterns in social mood. Instead, it arises from unconscious herding impulses traced back to evolutionary origins and patterened according to the Elliott Wave principal. In fact, it is these changes in social mood that motivate social action and the interpretation of "news" and events.
This is as applicable to the stock market as it is to consumer behavior, arts and politics.
In an interview with Socionomics.net, Robert Prechter of Elliott Wave International, Executive Director of the Socionomics Institute, uses the following chart to summarize and contrast the conventional view of social causality versus the Socionomic hypothesis of social causality.
As Prechter summarizes, "a positive mood induces people to expand businesses, dress with flair, buy happy music, make peace with others and buy stocks. A negative mood induces people to contract businesses, dress conservatively, buy morose music, fight with others and sell stocks. So social mood moves not only the stock market but other measures of social action as well."
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You can call me Mr. Gekko, but please don't assume that lots of Americans (especially my generation and the one just behind me) are not motivated by success and making lots of money. (and in turn buying the nice things that go along with that money) I pray to God that this ordeal does not leave us with less and less opportunities to make that money.
You have obviously never tasted the tap water from a faucet within the greater Phoenix metro area. One sip of that toxic brew and you would understand that bottled water is a necesity in certain areas of the country.
Spending my formative years surrounded by corn fields contributed to my lack of desire in chasing fads, fashions, and gadgets - so I never switched to bottled water. I did work with a fellow from KY and learned to respect his off-center view of the world. I always suspected that he put whiskey in his whiskey and passed on the bottled water entirely. At least after comparing notes on growing corn he convinced me that the land in KY is so bad they have to plant it with a shotgun.
How do those guys from KY figure all that stuff out??
Anyway after all these years of drinking tap water I still have both front teeth (the uppers).
Where in this article is the information I need about picking the bottom, buying the right stocks, finding the greater fool, etc. so I can get back to the serious business of accumulating all manner of thingies?
Intangible assets, indeed? Bah humbug. Would I be hanging out in the lounge of a financial blog if I needed a hug?
Agree generally with your worldview.. but this concept in particular.
Random note: my uncle used to run Dayton Wire Wheels. I feel sure he is stoked to be out of the luxury "rims" business at this point!
I arrived in Minyanville fairly recently, but I have been following your writing about social mood since last summer. Insightful and interesting.
I agree that the social mood is indeed darkening, and I am sure that it will continue to do so for some time. However, I see these years in terms of what William Strauss and Neil Howe called a secular crisis in their 1991 book, GENERATIONS. Societal acrimony can combust into a great conflagration during a crisis era, but it is also the kind of mood that can shift, over time, toward great collective action and social transformation. Along with tremendous risk and hardship, it's an opportunity to address imbalances, civic decay, and delayed comeuppance.
There is no guaranteed outcome, of course. But I believe that the generation now coming of age, dubbed Millennials, has the protean temperament to grow into a more optimistic and communally oriented generation when compared to the dour visage currently donned by Boomers or our own individualistic, increasingly tense, Xer pragmatism.
In 1991, Strauss and Howe predicted that America's generations would align into a crisis era constellation during the oughts, with the more substantive trigger occurring between 2005-2010. By my reckoning, the constitutional crisis of Bush's 2000 "election," 9-11, the Iraq invasion, and the credit binge were all lead-up to our current moment of upheaval - on the order of magnitude that only the oldest living Americans have experienced.
I think you would find their work interesting. I was a research assistant on Strauss and Howe's book, THE FOURTH TURNING. Their writing has influenced my world view a great deal, but I will note that they view the generational cycles in a more idealized and nationalistic vein than I do. My experience and academic training lead me to read against the grain of their politics and to proceed cautiously with such a grand, encompassing narrative.
In any case, I like your thinking and I wanted to suggest that you might be intrigued by the ways Strauss and Howe's work intersects with and diverges from your analysis.
HIGH SCHOOL MUSICAL style cheeriness may brighten the world of young adulthood in a few years time... Even as we struggle through GD2 and as yet unforeseen challenges to what we have come to view as social order.
I'm holding onto the hope that Obama will help pave a route toward a more just world. I think his temperament is right for the job, but we'll have to wait to see how bold he can be and what degree of support he can rally. I suspect that collectively we are not yet ready to take the steps necessary to adjust to new realities.
1.- Crocs are tacky. Have always been. The reason of their demise is that kitch trends can last only a couple seasons. Not elegant, nor joyful. Just a tacky fad
2.- Rather than bright color, I would point to sexyness as the tick for bright mood in fashion: watch out for fitted clothes and muscular bodies for men (of course nowadays bodies are part of the outfit), very small amounts of cloth, transparencies and openings in women apparel.
why, come to think of it there is a very well known inverse relation of economic health to the lenght of skirts (I got a kick out of this final warning note when checking my facts at investopedia: "Although some investors may secretly believe in such a theory, serious analysts and investors - instead of examining skirt length to make investment decisions - insist on focusing on market fundamentals and data.")
Should one be shorting Prada, Gym franchises and steroyds smugglers in California? Most certainly. And get long on pleaded shirts instead (yuk)
Wake me up when spring is back, please.
There are always rogues in any population of herd animals, solitary examples more or less isolated from internalizing the herd identity (myself, for example, and Obama for another). Such people are described as "deracinated", that is, "uprooted" early in life and thereafter unable to fully "identify" with the herd surrounding them (lots of different herds out there, "politics" is the word anciently used to describe the interaction of the various "factions" or "tendencies", tribes, clans, etc.).
And, yes, this insight is utterly necessary in investment. Remember always that looking at the markets is looking at herd behavior. In the markets only a true "contrarian" can survive, that is, a person that can sort out herd non-sanity adequately from his decision making process.
"There are always rogues in any population of herd animals, solitary examples more or less isolated from internalizing the herd identity (myself, for example, and Obama for another)."
After Jonathan reaches perfection he returns to seek out the "rogues" "like himself and Obama?"
On election night I was laying in bed wondering at what had just happened. Then it came to me, "Jonathan Livingston Seagull". This is what the collective intellectual imagination seems to have made of the man.
When I first read JLS I thought it exemplified a major flaw in the thinking of our time. There was another story about flying that reveals the flaw, the Greek story of Daedalus. In that story Daedalus fashions a pair of wings of wax and feathers for himself and his son, and tells his son not to fly to close to the sun or too close to the sea. Daedalus was truer to the universe of limits, rather than a world that exists only in the imagination.
Although I have never read the books Obama authored, I have a gut feeling that they portray the same spirit as JLS--the "Audacity of Hope"? Now, when I see Obama's almost giddy smile I think of Icarus, the son of Daedalus, who was overcome by the giddiness that flying lent him, as he soared through the sky curiously... but unlike Jonathan Livingston Seagull, who lives in grandiose imagination, Icarus falls down into to the depths of the sea, below the ground from where he came. A mighty long way down.
I'm sure that Kevin would say that what I wrote here reveals the new negative social mood, the choice of Daedalus over JLS, the opposite of what happened with this election.
They both effect each other in a feedback relationship - a darkening of social mood will start people selling, and losses in 401ks will further darken social mood, causing more selling.
Best to be a realist at all times, I think. As MV says, hope is not a good strategy.
Won't we be seeking happy movies like the Shirley Temple movies of the 30's?
Movies take years to develop.
Five "Saw" movies and "I am Legend" are products of positive social moods. Want to escape your McMansion/ipod induced charmed life? Go see something horrible.
Kevin's articles on societal mood, which are always so well written, provide continuity to one of the most important dialogues of not only our time, but for all times. Irrespective of whatever specific aspect of societal mood Kevin is addressing, his articles reinforce the broader questions relating to how we as a people decide what is important to us within a moment in time and over a much longer period of time. Collectively, the dominant temporal choice becomes manifest. So what we as individuals choose to do within a time reference has great importance.
As we contemplate what we are witnessing today in terms of climatic change and economic instability, the dominant individual choice among developed and developing societies seems to have been to "make as much money as possible so that I can obtain as many of the good things in life as possible." Given what we are all witnessing today, are you sure about your own choice for yourself? Are there other alternative choices that we as individuals and as a society can label as being "better?" If there are "better" choices, then you and I need to define what those better choices are and we need to start making them now...while there is still time to choose. Is that not what America is about...choices and the freedom to choose? We must now become very far sighted in our choices.
Kevin's article provides some real food for thought. Great lunch time conversation in my book. So let the conversation continue and the choice be made...for better or for worse...I hope for better.
My best wishes.
Gary
It's more like Minions are not followers of the herd...
It does make you think and that cannot be a bad thing.
I may not always agree and cetainly don't with some of this one, but I've been wrong before and will most likely be so again.
It won't stop me from reading, thinking, or learning.
That my friends is the value of MV.
The media, until recently at least, has painted a rosy picture and advised common folk not to panic and hang on for the recovery. Obviously it depends on individual situations as to whether that was good advice but in most cases going to cash last year would have been a smart move for almost everyone.
Dang few people went to cash positions last year. Gotta give MV credit for being right one that one. If you are very young you may live long enough to see a market recovery back to last year's level. In the last depression the govt did everything that it possibly could -- wrong. The future already is rhyming.
Each of those pairs of opposite directions were only mutual pairs, like two side of a single coin.
Not opposites so much as parts of one cycle, or relationship. One creates the other -- neither happens without the other happening also.
