Socionomics: An Interview With Minyanville Editor in Chief Kevin Depew
Ahead of the 2011 Socionomics Summit, Depew discusses how he came to follow Robert Prechter's theory of human social behavior.
Jill M. Noble: I'd like to ask you a few questions about Socionomics, about your opinions and how you've come to follow, or use socionomics.
Kevin Depew: OK, great.
JMN: You went to St. John's College, a pretty unique school, before going on to complete your philosophy degree at a more traditional college [the University of Kentucky]. How did your experience at St. John's influence the way you look at what's going on in the world?
KD: St. John's has a Great Books program where you sit around in a room with about 12 people or so with a group leader -- the professors there we called tutors -- and read original texts.
In a traditional philosophy class at a regular university, you might read a little bit of Plato's Republic, for example, and then you would read a professor's take on Plato's Republic and then there would be questions and essays and that kind of thing.
[At St. John's], you would just read Plato's Republic and then you'd talk about it. There was no right or wrong answer, and that was really formative for me in terms of analyzing texts and looking at the world through the prism of "well, what's really going on here: what's really happening?"
JMN: What led you to the markets, and to technical analysis, and from there, on to Socionomics?
KD: I graduated with a philosophy degree and in the '92 recession none of the big philosophy companies were hiring, so I had to find something to do. One company that was hiring was the Daily Racing Form (the daily newspaper that follows horse racing).
I started out there as a handicapper -- I was paid to handicap horses. There are a couple of ways to do that; you can do it from a fundamental standpoint or you can do it from a technical standpoint.
From there, I met a guy who was a handicapper who was a commodities trader. I wanted to be a commodities trader and so we kind of switched career paths there.
It's similar to the same things that led me to Socionomics. Fundamental explanations for market movements are unsatisfying. You spend a lot of time in fundamental analysis trying to go back and reconstruct the narrative so it fits your model. At a certain point you just throw your hands up and say "Hey, this is not working!"
That's how I came to technical analysis -- then, from technical analysis into Elliott Wave Theory, and from there into Socionomics.
JMN: I can certainly identify with the "philosophy firms not hiring"! We've got some really great minds here at the Institute and at Elliott Wave International and a lot of them have come here from pretty diverse backgrounds. It's interesting to see where people come from and how they arrived. You posted a pretty great [video] recently on Minyanville about socionomic trends to watch in 2011. Could you walk us through what you said in that video?
KD: Sure. One of the things that Bob [Prechter] or Pete Kendall has mentioned a number of times is the relationship between social mood and the horror genre in general. When social mood is positive, there are certain aspects of the horror genre that appear, and when social mood is trending negative, there are others.
What we've seen over the past year or two is a reemergence of the "zombie theme." To me, that was very interesting because if you go back to Japan and the deflationary spiral there people began to refer to the propped up banking institutions in Japan as "zombie banks."
There's actually a book that came out here in the US a couple of months ago called Zombie Economics. One of the most popular debut television shows last year was The Walking Dead, obviously about zombies. To me that's very interesting from a social-mood standpoint.
I don't know that The Walking Dead or the "zombie genre" fits in 2005. I don't think [The Walking Dead] gets produced [in a bull market].
What I've tried to do is look at Socionomics from the standpoint of "What is most likely to be produced at a given point?" if you are in the entertainment industry, for example.
We've seen that with our own characters: You know, Hoofy and Boo, the animated bull and bear. In 2005-6 when things are still somewhat positive, with respect to social mood, it's fine to have a cartoon bull and bear talk about things in a funny way and make fun of finance. When social mood turns negative, we're not going to put Hoofy and Boo out there and try to market them to say funny things about finance when people are concerned that the banking system is going to collapse, for example.
JMN: You said something about the fears of systemic financial failure maybe being over, even as the economic crisis continues. Is there socionomic reasoning behind that?
KD: As in people have suddenly stopped [worrying], they are not as concerned that "well, maybe my bank is going to close next week, so maybe I take money out?"
JMN: Right, that people are less worried about the system in general -- about banks closing; the system completely buckling.
KD: One of the things that has interested me most about Socionomics is trying to model the waves. As you know, things don't unfold directly. In terms of wave structure, there are -- even within the context of a negative overall trend in social mood -- there are going to be periods where things turn "up."
I think that that probably explains a little bit of where we are in the economic cycle right now [the ongoing bear market rally].
[But] it's always the case that when people are fearful and angry they make war, and we're certainly seeing things like that emerge in the Middle East.
One of my favorite Socionomic principles is the one that observes that outraged people seek [to uncover] scandals. That's certainly -- from the books that have been published over the last two years, to the financial crisis inquiry commission; now the SEC investigating SAC Capital (a major hedge fund being a target of their inquiries) -- those are all things that emerged from negative social mood.
If anything, from what I've seen, right now there are fewer violations in the hedge fund industry than there were three or four years ago. But people are now more focused on "let's find out these people," even though it has always happened, so it gives the appearance of being more.
JMN: Right. It's the social mood driving that.
JMN: I spoke with Scott Reamer last week, and he mentioned something I thought was pretty interesting: He feels that there should be a sort of "Hippocratic Oath" for the financial industry. He didn't have a lot of good things to say about traditional views or linear extrapolation. He mentioned that he talks with you about Socionomics pretty regularly -- what kind of stuff do you guys talk about?
KD: We talk about the same kind of things in the Socionomics monthly that you guys publish -- those types of things, observations. We're on instant messenger through Bloomberg, and point out things.
I met Scott when I came to Minyanville in 2005. We had a small conference that was out in Crested Butte, Colorado, where Scott was based.
We found that we had very similar viewpoints about things and were dissatisfied with trying to use linear tools to explain non-linear things -- you really have to fold things up and fit them into a box.
We both agreed that that's really what news media is about -- that's one of the reasons we founded Minyanville.
From being financial practitioners and seeing things unfold, we were dissatisfied with the way you would pick up the New York Times or the Wall Street Journal and a reporter who is very good at telling a linear story would investigate something and then have to try and fit it into a box, even if it doesn't make sense.
An editor might say, "Hey, this doesn't make sense," and they'd have to go back and have to find somebody else to talk about it. You spend all this time as a reporter trying to make sense in a linear manner about things that don't fit that way.
[Scott and I] found we had very similar viewpoints, and Socionomics, once we found it, was eye-opening. It gave us an entirely new way to look at what's reported in the media and how we're experiencing the world.
JMN: It's going to be really great to get a lot of people who are also on the same wavelength talking at the conference; I'm looking forward to your presentation.
Again, thanks for taking the time to speak with me -- see you in April.
KD: I look forward to it.
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