The Devolution of Social Mood
How society and markets are interconnected.
Editor's Note: Todd posts his vibes in real time each day on our Buzz & Banter.
I walked into work yesterday, sat down, and wrote a column about Apple (NASDAQ:AAPL).
The stock has been in the news and I was compelled to share some thoughts on the price action and its impact on the stock market. (See: 5 Massively Important Observations on Apple.)
And there’s the fiscal cliff, a real-time Russian roulette that has implications for every American, and by extension, our interconnected world. I recall when financial markets moved on fundamental data, technical analysis, structural forces, and prevalent psychology; it’s quite a statement that politics now produces the single-greatest headline risk in the financial equation.
A few weeks ago, I wrote a column called, The Short Sale of American Icons. It was an attempt to delve into a topic that’s not easy or fun, namely, the deterioration of social mood and the implications for our society, using modern-day examples such as Twinkies, Elmo, and Lance Armstrong.
Minyanville has long been wary of the unintended consequences related to our current fiscal and monetary policy and the attendant income disparity, and how “drugs that mask the symptoms rather than medicine that cures the disease” would manifest through a social lens. (See: Shock & Awe.)
We drew attention to this dynamic in 2005 at our event in Ojai, California, and again, perhaps more vociferously, in 2006 during our sojourn in Vail, Colorado. I remember the quizzical looks when I broached the topic of “societal acrimony” and attempted to explain the potential ramifications it would have for us all.
“The stock market crash of 1929 didn’t cause The Great Depression,” I said at the time and have repeatedly offered since. “The Great Depression caused the stock market to crash. Social mood and risk appetites shape the entire financial equation, not the other way around.”
Folks didn’t want to discuss the approaching housing bubble or the looming financial crisis—they were too busy making money in symbols rather than stocks—and there wasn’t an economic motivation for Minyanville to table those topics. We lost advertisers as a result; we were deemed “too bearish.”
As the following years unfolded—after housing crashed and the financial construct imploded—we mapped what we perceived to be the forward manifestation of social mood, a concept that, on its face, had little to do with bottom line or a P&L.
We called it the “tricky trifecta”—a phrase first coined in 2010—and it spoke to an unfortunate progression from societal acrimony to social unrest and geopolitical strife.
The American Scream
On Friday, we experienced one of the most horrific incidents in our lifetime, and yes, that’s saying something. (See: Brokedown Palace.)
A lone gunman walked into an elementary school and gunned down 26 people, including 20 first graders; each victim was shot between three and 11 times, and six brave teachers were among those who lost their lives.
While this tragedy hit close to home—the tri-state area is a singular community, sports rivalries notwithstanding—this could have been Anytown, USA. And it’s not just this senseless act that is so very horrifying; it’s the rate and pace at which these events have transpired.
To wit, the following domestic school shootings—along with several random acts of violence—have transpired since 2008:
Feb. 11, 2008 in Memphis, Tennessee: A 17-year-old student at Mitchell High School shot and wounded a classmate in gym class.
Feb. 12, 2008 in Oxnard, California: A 14-year-old boy shot a student at E.O. Green Junior High School causing the 15-year-old victim to be brain dead.
Feb. 14, 2008 in DeKalb, Illinois: A gunman killed five students and wounded 17 more when he opened fire on a classroom at Northern Illinois University.
Nov. 12, 2008 in Fort Lauderdale, Florida: A 15-year-old female student was shot and killed by a classmate at Dillard High School in Fort Lauderdale.
Feb. 5, 2010 in Madison, Alabama: At Discovery Middle School, a ninth-grader was shot by another student during a class change.
Feb. 12, 2010 in Huntsville, Alabama: During a meeting on campus, a biology professor who was denied tenure a year earlier shot her colleagues, killing three and wounding three others.
March 9, 2010 in Columbus, Ohio: A man opened fire at Ohio State University, killing two employees and wounding one other after receiving an "unsatisfactory" job evaluation.
Jan. 5, 2011 in Omaha, Nebraska: Two people were killed and two more injured in a shooting at Millard South High School. Shortly after being suspended from school, the shooter returned and shot the assistant principal, principal, and the school nurse before taking his own life.
Jan. 5, 2011 in Houston, Texas: Two people opened fire during a Worthing High School powder-puff football game. One former student died; five other people were injured.
Jan. 8, 2011 Tucson, Arizona: Rep. Gabrielle Giffords was shot in an assassination attempt. At least 17 others are shot by a gunman, who opened fire during a constituent meeting outside a local grocery store. Six people were fatally wounded, including US District Court Judge and a young girl.
May 10, 2011 in San Jose, California: Three people were killed in a parking garage at San Jose State University. Two former students were found dead on the fifth floor of the garage and a third, the suspected shooter, died later at the hospital.
Dec. 8, 2011 in Blacksburg, Virginia: A Virginia Tech police officer was shot and killed by a 22-year-old student of Radford University. The shooting took place in a parking lot on Virginia Tech's campus.
Feb. 10, 2012 in Walpole, New Hampshire: A 14-year-old student shot himself in front of 70 fellow students.
Feb. 27, 2012 in Chardon, Ohio: At Chardon High School, a former classmate opened fire, killing three students and injuring six. Arrested shortly after the incident, the shooter said that he randomly picked students.
March 6, 2012 in Jacksonville, Florida: A 28-year-old teacher at Episcopal High School returned to the campus after being fired from his job and shot and killed the headmistress with an assault rifle.
April 2, 2012 in Oakland, California: A 43-year-old former student at Oikos University, a Christian school populated by mostly Korean and Korean-Americans, opened fire on the campus, killing seven people and wounding several others.
July 20, 2012 in Aurora, Colorado: During a midnight screening of the film The Dark Knight Rises, a gunman opened fire on the crowded theater. At least 12 people are killed and 38 others are wounded.
August 5, 2012 in Oak Creek, Wisconsin: A gunman opened fire at a Sikh temple, killing six people and wounding three. Police shot and killed the suspect, Wade Michael Page, after the attack. Page, a neo-Nazi, served in the UD Army from 1992 to 1998.
December 14, 2012 in Newtown, Connecticut: A gunman killed 20 children and six others at the Sandy Hook Elementary School. He killed his mother at her home prior to the massacre at the school, and committed suicide after the rampage.
Lest you think that there is a subtle “we got this right” vibe here, let me stop you right now. There are no winners during this terrible time; there is only sadness, grieving, mourning, and perhaps in time, perspective. History books will depict this period with the benefit of hindsight and an absence of emotion; for the rest of us, we must figure it out as we go, in real-time, and prepare ourselves for what’s to come
Like many parents last week, I got home last Friday and hugged my children extra tight. Despite a difficult week—and indeed, a particularly tough year—none of that mattered as I pulled into my driveway on dark, damp evening that suddenly seemed apropos. As we’ve learned too often in our time together, there is a difference between loss and loss.
So, what does this all mean, and more importantly, how can we shift this seemingly self-perpetuating course?
There are obvious one-off suggestions—a ban on assault rifles, rigorous testing and treatment for mental illness, more thorough child safety precautions—but through a broader lens we must understand the fundamental difference between socioeconomics—which posits that the economy drives social mood—and socionomics, which argues that social mood drives financial, economic, and political behavior. (See: An Interview With Robert Prechter.)
While year-end animal spirits manipulate fund manager behavior and healthy corporate balance sheets -- created by the very same policies that shifted risk from one perception to another -- fend off a credit conundrum on the consumer and sovereign sides of the equation, the chasm between the stock market rally and a legitimate economic recovery becomes increasingly apparent.
Policymakers will take solace in the fact that the S&P (INDEXSP:.INX) and Nasdaq (INDEXNASDAQ:.IXIC) are up double-digit percentages for the year, the housing market has seemingly bottomed, employment—or, the method in which it is measured—is moving in the right direction, and that taxpayers made a boatload of money on their AIG (NYSE:AIG) trade. (Read: Measuring the US Blues.)
But questions remain that I don’t hear being discussed in many circles:
Were the social consequences of our policy directive considered when decisions were made in the heat of a crisis, and what can we do to remedy that?
If social mood dictates the price of financial assets, when will this emotion express itself through the world’s largest, if not entirely free, thermometer that is the stock market?
And if Occupy Wall Street was “societal acrimony” and killing sprees are “social unrest,” what awaits us as the final phase of our tricky trifecta prepares for the grand finale?
I am not smart enough to provide these answers, but I’m human enough to ask these questions; for every action there is an equal and (in a leverage finance-based interwoven world) possibly larger reaction, and we would be wise to respect the unexpected.
Nothing we can say or do will bring back the souls that were so needlessly lost, but we must understand that these seemingly random acts were not very random at all.
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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 email@example.com.
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