Socio-Economics – the Markets and You
Robert N Elliott, an accountant in the 1920’s and 30’s, discovered repeating patterns in the prices of stocks and entire markets. These patterns are repeated over and over in smaller and larger cycles called fractals. And they are also repeated in nature as well as the financial markets. The structure of an atom looks very much like our solar system. Fractal.
An emerging science called socio-economics provides some insight to why the same patterns emerge in the prices of securities. People tend to act the same way in similar circumstances. It is just hard to label these circumstances without the hindsight of history.
A large body of work has been developed by Robert Prechter, of Elliott Wave International, attempting to tie the emotions displayed in social moods to stock market activity. Prechter is widely seen as a gloom-and-doomer since for many years he has spoken of a really nasty stock market developing. However, 30 years ago, in the midst of Arab oil embargoes and high inflation, he called the bottom of the bear market with great foresight, so he is not a perpetual bear. It is just that in his interpretation of the Elliott Wave Theory (EWT) stock market pricing is pointing down.
Prechter’s work is really two pronged: the hard number crunching of EWT, and the softer science of socio-economics. He says social moods drive the markets, not the other way around. The bear market begins in investors’ hearts, minds and lives and then moves to the financial markets. Prechter is great at pointing out social turning points and tying them to market activity. I was reminded of his work over the past few weeks as reports came in of the eroding confidence in our federal government, riots engulfing France, rising fear of Islamic fascism, sports icons found to be “juiced”, and the high number of Americans who are worried about their economic future. Could these factors be enough to erode the confidence of investors, creating recession and major market declines as socio-economics would lead us to believe? Possibly. We’ll have to stay tuned to find out for sure. While we wait to find out, our managed account clients can take comfort in knowing they will have us analyzing their investments every day, ready to move them to the relative safety of a money market fund if the markets do begin a major decline. If you have not signed up for a managed account, please be comfortable calling the office for details on this service. Let me become your designated worrier.
Also, please be aware that I subscribe to many newsletters whose takes on the markets are much more upbeat than Prechter’s. However his work with socio-economics is fascinating. Prechter has written several books on EWT if you are interested. Among them are Conquer the Crash, The Elliott Wave Principle: Key to Market Behavior, and Socio-Economics: The science of History and Social Prediction. November 2005
“Thanksgiving is a creative force that, if lived on a continuous basis and not just one day each year, can create more good in your life. Perhaps we could call this way of life Thanksliving. Thanksliving is based on the premise that living a life of appreciation and gratefulness leads to having more to be thankful for. We have the ability to create blessings in our life through the power of mind action and the choices we make.”
John Templeton, founder of the Templeton Mutual Fund family (now Franklin-Templeton), and a personal idol of mine.
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Speaking of Thanks
A few months ago I thanked Bill Sileo, the project manager of my construction project. Now that we are winding the job up, and dealing with the many finish details, I’d like to thank handyman Don Fisher, who is tying together the many loose ends between the old house and the new addition. Don has an amazing array of skills—electrical, tile, plumbing, woodworking— just about everything. He is a perfectionist, too. Don is not a licensed contractor, but is a good man for those smaller jobs. 583-0610.
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