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Five Things You Need to Hear, the Transcript

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It's just like Five Things You Need to Hear, the Podcast, only quieter.

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Cory Bortnicker: Welcome to 5 Things You Need To Hear: The Podcast. I'm Cory Bortnicker, and with me is Minyanville Executive Editor, Kevin Depew.

Kevin Depew: Hey, Cory.

Cory Bortnicker: Kevin, in your column on Minyanville on Tuesday, you talk a lot about social mood and socionomics. What is socionomics?

Kevin Depew: Well, very simply, it's the study of social action that is expressed through social mood. Now, social mood, what do we mean by that? Social mood arises from unconscious, herding impulses inherited through evolution. And these herding impulses are, in fact, patterned. So, socionomics just simply looks at events through the lens of social mood, and uses the stock market as one barometer of that. In fact, the stock market is the best measure of social mood, I think.

It's a little bit controversial and counterintuitive, very difficult for most people to accept, but social mood drives social trends and political and cultural events. Most people think it's the opposite, that events happen and then it causes our mood to change. Like wars, for example; the belief is they happen and then everybody becomes depressed. Or the stock market, out of the blue, crashes and everybody is plunged into a depression.

Socionomics takes the opposite view, that it's actually social mood that paves the way for those events to take place.

Cory Bortnicker: Okay. In your column you presented a chart that details what the conventional view of a causal relationship versus what the socionomic causality would be. For example, there was one attitude that recessions cause businessmen to be cautious - that would be the conventional view, whereas the socionomic view would say that cautious businessmen cause recessions. Can you talk about that a little bit?

Kevin Depew: Sure. I pulled that from a website, socionomics.net, that's the website for the Socionomics Institute. It has a wealthof information that anyone can view, and I would encourage everyone to check it out when they get a chance, look at some of the articles there about socionomics.

But going through that chart, it shows how socionomics is counterintuitive, because we think that, well, if there's a recession, then that causes businessmen to become more cautious. But, in fact, social mood is what drives that risk aversion and caution that translates into, ultimately, recessions. That's just one example. There are many if we go through that list.

For example, the popular view is that a talented politician or leader will make the population happy, but, in fact, it's the population's mood that determines how that politician is going to be interpreted -- what his actions are going to look like.

The perfect example of that would be Alan Greenspan. Alan Greenspan, throughout the bull market and the peak positive social mood years up until the late '90's was viewed as a dynamic Fed Chairman, someone who was very talented. There were books about it. He was called The Maestro. He was lauded. He was on the cover of Time magazine.



And then something began to change, and that was social mood. Now, looking back -- we talked about this on our recent podcast -- he was recently called before Congress and essentially pilloried and vilified for those very things that he was praised for previously. Now, is that because the market is down? No, it's because social mood has been changing, really, for about eight or nine years now.

Cory Bortnicker: Let's talk about, on that chart, the section about how we choose our leaders and that a happy society would pick a leader who at least appears to be talented. How does that reflect on the current election of Barack Obama? I mean, what does that suggest about our social mood now, or does it not suggest anything?

Kevin Depew: Well, I think clearly when you have social mood that's deteriorating and becoming more negative, people are more open to kicking out the incumbents, choosing somebody who might at least initially be interpreted as being a dynamic new leader, somebody who is not going to represent the things that people are beginning to rebel against.

I can tell you what I think from a socionomic standpoint and that is I believe that Barack Obama will doubtfully be President four years from now, when he runs again. I think that social mood is going to become so much darker that whoever won this election was really doomed to be a one-termer, because things are going to get worse. Social mood is continuing to darken, and it's going to get to the point where anybody who is an incumbent has a real risk of holding on to their seat. We'll see what happens.

That's just one view, and I'm sure that there are people that would disagree with that. But I think that it's a very dangerous time to be a politician because we have not reached the peak bottom in social mood -- the peak in negative social mood.

Cory Bortnicker: So, just generally, and then we can move on to some specific examples of how socionomics is playing out in our everyday lives. But, generally, if the principle is that social mood is driving events in society, then what, ultimately, is going to change social mood, or what can change social mood?

Kevin Depew: Well, that's the thing. It's all patterned. Now, this is another controversial aspect. There are people who don't want to believe that -- you know, it's a bold statement to say that our behavior is somehow patterned. But if you look at herds of animals antelope, birds, for example, their migration patterns, there are herding impulses at work there that cause them to move in certain ways.



The Elliott Wave Principle is one way to evaluate those herding impulses. I mean, we like to think we have computers and all of these things that are so technologically advanced, but if you look at the span of human life, we're living in a very small section. A hundred years is a microsecond, really. And so it wasn't that long ago that we were still bashing each other over the head with rocks for fish, you know, and that was a common way of behavior, a common mode of behavior -- accepted. That's, of course, not accepted as much now. Although there are still people who may prefer to bash each other over the head with rocks, it's frowned upon to a much greater degree now.

Cory Bortnicker: In terms of how we're seeing the social mood play out in our day-to-day lives, there was an article in the New York Times recently talking about fashion and what is acceptable behavior in terms of what kind of wealth people are open to displaying today. Is that a symptom of the social mood right now?

Kevin Depew: Well, I think that you can find evidence of the change in social mood in all aspects of popular culture, whether it's fashion, dining, film, music, all of these things.

Why is it that a certain genre of film is popular at a certain point? Why is it that a certain dining experience, type of experience is popular at a certain point and then recedes later on? Well, that's driven by social mood. It's not that all of a sudden people decide, "I'm tired of these glitzy restaurants now, let's scale down."

No, it's social mood that determines those things. And one thing that I've noticed and I believe will continue to happen is that social mood will darken to the extent that any type of overt display of consumption, so-called "bling," any kind of gaudy display of wealth will be frowned upon.

There are always people who are out there going against the social mood trend. If you have a herd of animals, there are always going to be a couple of animals who are not joining the herd and are off doing their own thing. There are always people who are going to be doing their own thing. Don't get me wrong.

But in the aggregate, there's going to be less acceptance of that kind of display of wealth and consumption, the accumulation of things, living in bigger houses. We've seen all of these things begin to come together, downsizing in smaller houses, restaurants, you name it.

Cory Bortnicker: Right. And it's not just extreme luxuries, it's also things like bottled water, which is something else that you wrote about, that bottled water is a commodity that is now coming under some scrutiny as a result of the darkening social mood.

Kevin Depew: That's right. The reality is that bottled water has been around for 30 years. It's not as if somebody, seven or eight years ago said, "Hey, let's put water in bottles and sell it and rip people off."

No, that's not the case. These are all things that as social moods darkens, we begin to reevaluate. "Wait, why are we spending this much for water? Is it healthy? Is there something wrong with the bottles?"

There hasn't been anything wrong with the bottles for at least the first 25 years that anybody's cared to really investigate. It's only in the last five years when people begin to sense that luxuries -- what we take for granted during peak positive social mood - those types of luxuries, like bottled water, for example, when those become out of reach onan income basis, then that's when it begins to change and people begin to figure out ways, psychologically, to deal with not being able to attain that, or aspire to attain that luxury. That's a perfect example of what's happening with bottled water, this growing movement against bottled water, against the use of plastics.

Cory Bortnicker: All right. We've got time for just one more question. Let's talk about how people are planning their personal savings versus investments. How is the social mood sort of affecting how people are handling their own money right now?

Kevin Depew: Well, you see during peak positive social mood years, the savings rate plunged and people put that money in riskier and riskier ventures. And that was because there was a general feeling of optimism. And that optimism translates into increased risk-taking behavior.

We are now at a point where social mood has begun to turn more negative, and so there is an increasing risk aversion, and following upon that is going to be an increase in savings. I think we'll see the personal savings rate in this country go from about zero percent, maybe to as high as 8 to 10 percent, which would have significant consequences for the economy in terms of consumer spending. We've already seen new lows in consumer spending in reports that came out over the past week. That's going to continue in 2009, and savings is going to be the operative word.

Another example. There's a great television host that I think is very entertaining. His name is Dave Ramsey, and he preaches the elimination of debt, avoiding credit cards, destroying your credit cards, living within your means, saving money and only spending what you earn. And if you don't earn it, then save it, and when you save enough then you buy it if you want it.

Well, that's an interesting message, but here's the reality about Dave Ramsey. He's been preaching that message for about 15 years now. that's how long he's had a radio show. And so the question is, has he just somehow become better at disseminating his message of getting out of debt and saving, or is it the case that social mood has turned and he's in the right place where social mood begins to seek out people who are preaching that message?

That's what I think is going on. And there is no disrespect intended toward Dave Ramsey. He's very entertaining, but my argument is he's just as entertaining today as he was eight years ago, or ten years ago. And the only thing that's changed is that social mood is in a place where a larger pool of people are beginning to embrace and accept that message of risk aversion, saving versus consumption and risk taking.

Cory Bortnicker: All right. Well, thank you very much, Kevin, for your time and our discussion today. Thank you for listening, and come back next week for more 5 Things You Need To Hear.
No positions in stocks mentioned.

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