Weekend July 22, 2012

From The Market Perspective

I have been reading Engines of Change by Paul Ingrassia, a history of the USA told via fifteen different cars. I mentioned in the update that we have entered an 18 year period of negative sentiment, the last one began in 1966, the current one in yeear 2000. Chapter Seven is about the brief reign of John DeLorean, the Pontiac GTO, his lifestyle, and the failed Delorean.

Two paragraphs on page 166 caught my eye in explaining just how fast the change then was happening.

Events that seemed unthinkable just a few years earlier started happening all the time. In April 1966 Time as on its cover, Is God Dead? Charles Whitman killed 13 people from the Tower at UT Austin, wounding 31 others. The Rolling Stones released '19th Nervous Breakdown.'

In 1967 the US Army was dispatched to quell a race riot in which 43 people died in Detroit. Beatty and Dunaway romanticized rebellion in Bnnie and Clyde. 1968 borught the assassinatinos of Martin Luther King and Bobby Dennedy. The Chicago Seven disrupted the Democrat Convention in Chicago. It does not take a lot of imagination to see that same chain of events playing out again today.

As I say all my writing about socionomics and 18 year cycles has been quite serious for the purpose of preparing you for just these kinds of events.

Monday July 16, 2012

he Beatles and Wall Street

Joel Benjamin | June 2012

What do The Beatles have to do with the stock market? Everything, says Robert R. Prechter, Jr., one of America's leading stock market analysts and founder of Elliott Wave International, the world's largest market forecasting firm.

Prechter has developed a new theory of social causality called socionomics. It postulates that waves of social mood regulate social actions — including even the popularity of rock stars.

The crux of his theory is that an increasingly positive social mood motivates people to express their increasing joy and enthusiasm by buying stocks. Increasingly negative social mood encourages people to express their increasing misery and anger by selling stocks and seeing the worst in their heroes. The Beatles became the focus of social actions reflecting these mood changes.

Prechter's research shows that the most important dynamic which ignited "Beatlemania" was the increasingly positive social mood of the day:

"Contrast the years of struggle and frustration, ending at the bottom of the bear market of 1962, with their career-making breakout when the trend turned up. Or the spectacular rise in their fortunes as the stock market rose from 1963 through 1965 with the string of stunning setbacks during the bear market of 1966. The rally of 1967-1968 brought a return to success, but, being a bear market rally…it had plenty of stresses and negative aspects. Finally, compare the events attending the 1967-1968 stock market rise with those of the 1969-1970 bear market. The changes in their experiences are so stark — and the role of society so obviously important–one cannot fail to see the trends of social mood at work."

He points specifically to the period of February-October 1966. When the social mood trend was trending toward the negative, as evidenced by a falling stock market, that's when much of the world — from America to the Far East — turned on The Beatles. Then there was Lennon's comment about Christianity and the disastrous visit to The Philippines.

Social mood stimulated all types of expressions and The Beatles were not the only recipients of expressions of happy enthusiasm. Economies were expanding. Warring was at a minimum. All of these were results of an increasingly positive social mood which expressed itself through these social actions.

Stock markets, cultural trends and social barometers

One of the strengths of socionomics is its predictive ability. Since social actions take time to mobilize, there's a correlation between the stock market and cultural trends.

Prechter writes:

"Recessions follow stock market declines. Economic recoveries follow upturns in stocks. Warring is more common after the stock market has fallen. Peace is widespread after the stock market has risen. Horror movies increase in production and popularity as the stock market falls. Bubble gum music is popular in positive-mood trends near major stock market peaks. And so on."

Socionomics flips social causality on its head: changes in social actions do not cause social mood to change. Changes in social mood cause social actions to change. This direction of causality is counter-intuitive, which is why no one has noticed it before.

Rising stock market does not make people increasingly happy. Increasingly happy people make the stock market go up. From October 1962 to February 1966, social mood became persistently more positive, so stocks rose and expressions of joy increased. The Beatles both expressed that joy and were recipients of it.

The last two years of the decade saw both the decline in Beatles fortunes and the stock market heading south. From December 1968 to May 1970, stock prices fell and The Beatles quarreled and made bad business decisions until they disbanded.

From 1970, as the market went sideways in nominal terms and down in real terms, Harrison and McCartney flourished, while Lennon mostly struggled or hibernated. In January 1980, at the low in real stock prices, McCartney was busted in Japan for pot possession and briefly went to jail and Lennon was murdered.

As the public mood changes so does The Beatles' fortunes

It wasn't until the public's mood changed significantly toward the positive over a period of years that the public rekindled its love of The Beatles. In 1987, The Beatles catalogue was issued on CD.

Then, as the market started to really move upwards under Clinton — as the public became hopeful again — The Beatles and their attraction to the public intensified. In the mid 1990s, they released Live at the BBC, then came Anthologies, books, videos and CDs and two new singles — Free as a Bird and Real Love. The stock market climaxed in 2000, and the public's renewed adoration of The Beatles peaked in November of that year with the release of "1" album which sold 13 million copies in the first month.

As the stock market dove from 2000 to 2002, The Beatles waited it out, and in November 2003 at the start of another upturn, they issued Let It Be — Naked, then The Capitol Albums, and then came Cirque de Soleil/Love in Las Vegas in 2006.

They rode out the next downturn in the market from 2007 to early 2009 and then appeared again at the end of 2009 with the release of the Remastered catalogue and the Rock Band video game. In the fall of 2010, with mood and the market still rising, they finally released their entire catalog on iTunes.

Bear markets are mostly bad for rock stars. Many of them died during bear markets: Hendrix, Joplin, Morrison, Jones, Elvis, Keith Moon, and John Bonham.

The problem for Beatle fans is that Prechter's socionomic theory predicts that The Beatles' popularity will not continue indefinitely. Given the social mood and upcoming negative trends in the markets, The Beatles' public appeal will once again fade significantly.

History shows that fans' passion during the mania years always wanes as the people who experienced it die off. Still, there is hope for some measure of timelessness as well as periods of rekindled Beatles appreciation. Prechter concludes that true talent endures and pockets of appreciation remain, but initial passions may never return.

Any revivals of Beatle appreciation, according to socionomics, are likely to come late in major positive-mood trends in social mood:

"The Beatles were for the most part a positive-mood band, and it will take substantial extremes in positive social mood — like the one that supported them in the 1960s and again in the 1990s, to make resurgences of their popularity even possible."