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Todd Harrison: Social Mood and the Stock Market


The chasm between perception and reality could close.

Editor's Note: Todd posts his vibes in real time each day on our Buzz & Banter where subscribers can follow over 30 professional traders as they share their ideas in real time.

I penned a Social Mood primer last year; it spoke to formerly pristine people and brands that had fallen from grace and the potential ramifcations to a free market.  It was, in many ways, an extention of The Short Sale of American Icons column that published in 2010, which recapped a conversation we had prior to the financial crisis.  And I quote,

"In the summer of 2007, Minyanville openly asked if the fall from grace of well-known icons such as Paris Hilton, Lindsay Lohan and Britney Spears was indicative of the shifting social mood and by extension, might be predictive for financial markets.  The notion seems silly on its face: the obsession with the whereabouts of a trio of social starlets couldn't be further removed from the inner-workings of Wall Street.  We posited the question, however, as social mood and risk appetites shape financial markets and sure enough, the tape turned lower a few months later."

Now, let's be honest: the stock market has been a straight shot higher since March 2009 and nothing has mattered, at least nothing that would be perceived as a potential negative.  And there's been a lot thrown at the tape.  European debt crisis.  Flash crashes. The US Goverment shutdown.  Multiple debt ceilings.  Occupy Wall Street.  The end of QE, each and every time.  Greek default.  Ebola.  Argentina.  Ukraine.  Emerging market currency crisis'.  Heck, even Hindenberg Omens.  God forgid you employed any semblence of risk management and you're chasing the tape higher like everyone else and feeling rather foolish for not being fully invested.

I'm not going to get into the "why" or open the can of worms that is the unprecedented global central bank coordiation.  The "other side" of that trade, if and when, has become a source of folly and scorn.  Indeed, there is an entire generation of traders that don't know watershed downside events, or at least those that aren't bailed out in the blink of an eye.  No, this post isn't about that; it's about the world we live in, the disconnect between perception and reality and the potention for that chasm to close.

It's December 2014; the S&P is up 12%, the NASDAQ is 20% higher an Dow Jones Industrial Average is ahead by almost 8% (the Russell 2000, for it's part, is flat).  All seems well in the world, at least as measured through a pure financial lens for those invested in the stock market.  

But take a step back and look around; the signs of social discord surround us.  The NFL?  Once a badge of honor, modern day gladiators; in the crapper.  The police force, who "protects and serve?"  Under fire on the streets of New York, Missouri, California.  The President of the United States.  Need I say more.

When I asked, "Will QE2 Trigger War Games?" and mapped the "tricky trifecta of societal acrimony -> social unrest -> geopolitical conflict," I hoped I would be wrong. 

When we discussed "The War on Capitalism" or shared that I was moving my family out of New York City, I thought perhaps I was over-reacting. 

But watching protestors shutting down Broadway, and Times Square, and the West Side Highway last night, I sure was glad that my kids were tucked into bed in the relative safety of surburban Long Island.

The happenings around the world, at almost every level of society and government, might be par for the course or it maybe something more, like the "other side" of central bank policy coming home to roost.  Of course, this could also be the lunatic ramblings of an old timer who long ago lost his way, "one of those guys" who still believes in meritrocracy and business cycles and two-sided risk.

Perhaps, but something tells me we'll find out soon enough.


Twitter: @todd_harrison

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