Wednesday, February 15, 2012

What's Robert Prechter Been Up To? Fear, Submission and the Authoritarian Impulse

Besides the Elliot Wave stuff Mr. Prechter is hanging his hat at his Socionomics Institute and getting papers published in peer-reviewed journals!

We looked at one of his (non-peer-reviewed) pieces in last June's "Stocks and Sex: A Socionomic View of Demographic Trends".
Take that Harry Dent!

I'm finding these efforts much more interesting than Elliot Wave, which with the 'alternate wave counts' had made itself non-falsifiable and thus more akin to a belief system than to science.

Here's some backround to the paper linked above, from the Socionomics Institute (more Climateer chatter after the jump):

 Authoritarianism: The Complete Socionomic Study 
Part 1: The Wave Principle Governs Fear and The Social Desire to Submit
Mention authoritarianism and most people imagine its ultimate incarnation—a dictator wielding top-down control. The socionomic perspective, however, paints a fuller picture.

Authoritarianism begins with a negative social mood trend, which in turn spawns a desire among some to submit to authority and among others to coerce their fellows to submit. At the same time, still others, caught up in the same emotional climate, battle against authoritarianism.

We forecast that a continuing long-term trend toward negative social mood will produce increasingly authoritarian—and anti-authoritarian—impulses and eventually lead to the appearance of severe authoritarian regimes around the globe.

A Society’s Definition of Normal Constantly Changes
To begin our study, we must look at how a society determines what is socially, politically and morally “Normal.” Different large-degree mood trends create dramatically different perceptions of normalcy, even in the same country. Positive mood trends produce increasing confidence and consensus; negative mood trends produce fear, anger, polarization, discord and challenges to the status quo. Chapter 14 of The Wave Principle of Human Social Behavior (HSB, p. 227-228) says:
A waxing positive social mood appears to correlate with a collective increase in concord, inclusion, a desire for power over nature … . A waxing negative social mood appears to correlate with a collective increase in discord, exclusion, a desire for power over people … .1
In the United States, for example, the massive 1950s-1960s Cycle wave III bull market featured broad agreement on many basic values and norms. Increasing inclusionism ushered Alaska and Hawaii into statehood in 1959, and society’s desire to express its power over nature led to, among other massive ambitions, the moon landings in the late 1960s and early 1970s. In contrast, today—10 years into a Grand Supercycle-degree bear market—U.S. society’s perception of itself and its future has radically changed. Increasing discord and exclusionism is evident in calls for secession, threats of violence against members of Congress and Arizona’s recent passage of highly restrictive anti-immigration legislation. As for power over nature: opposition to genetically modified foods and to carbon-producing industry show the opposite impulse, and NASA’s share of the federal budget is one-tenth what it was in the 1950s.
Around the globe, the desire for power over nature is yielding to the desire for power over people. Segments of society are increasingly accepting this as “normal”; others are battling against that view.

Introducing the Socionomic Nolan Chart
Social polarization is not limited to the one-dimensional political spectrum of left versus right. It also includes the opposing views of anarchy and authoritarianism. The first image in Figure 1 is our adaptation of the Nolan Chart, a simple diagram that depicts these complex political dynamics. David Nolan posits that left-wing liberalism advocates personal freedom, and that right-wing conservatism advocates economic freedom; libertarians advocate both, and authoritarians neither. We added the inner diamond to Nolan’s picture to show the distinction between the consensus that occurs during a bull trend and the polarization of views during a bear.

A Society’s Perception of “Normal” Is Constantly Changing

Figure 1
Images 2 through 6 in Figure 1 portray how a society’s perception of what is “normal” shifts over time.
  1. Snapshot of bull market, with the consensus view arbitrarily positioned in the center.
  2. Beginning of Bear Market: Polarization begins. People abandon the consensus view.
  3. Mood decline accelerates: Polarization increases, as do calls for separation, opposition and destruction of the status quo. Society’s sense for what is “normal” loses definition.
  4. Majorities form and one prevails: Society’s new normal gels nearer one of the corners.
  5. Mood trend bottoms, reverses: A new bull market begins. Polarization decreases. Partisans begin to embrace compromise and re-form a centrist view.
  6. Bull market under way: Society desires peace and cooperation. Optimism and willingness to compromise prevail. “Normal” may begin a slow shift, but even as the perception moves, society maintains consensus.
A large-degree mood reversal can accomplish a dislocation of views in a relatively short time. For example, the 1929-1932 Supercycle wave (IV) mood decline set up a dramatic change in the United States’ consensus view of “normal.” First, the trend toward negative mood polarized society and diffused consensus, throwing “normal” into flux. Once the bottom formed, the majority began to emphasize unity and self-sacrifice in the face of external enemies; a new centrist-diamond “normal” coalesced, lower and further left than before. This new normal persisted into the 1950s bull market, when U.S. citizens displayed unusual compliance with reduced economic freedom via record-high tax rates. The consensus held for 50 years, with moderate Democrats Kennedy and Clinton and moderate Republicans Eisenhower, Nixon and Bush reflecting the middle-of-the-road political viewpoint.

Bull markets generate consensus even in societies that are very near a Nolan extreme. For instance, the Supercycle wave (IV) of 1929-1932 caused Soviet society to polarize as well. Amid rising factionalism in 1929, Joseph Stalin attempted a hard-left, super-authoritarian move to collectivize agriculture. The authoritarian/anti-authoritarian conflict took a heavy toll:
Farmers considered this policy a return to serfdom. They resisted and destroyed about half the U.S.S.R.’s ­livestock—some 55 million horses and cows—whereupon Stalin responded by sending about a million families into exile. This conflict, and a catastrophic decline in grain production, exacerbated the famine of 1932-1933 that killed between five and 10 million people.
Global Market Perspective, “A Socionomic Study of Russia,” November 20072
After Supercycle wave (IV) bottomed, the Soviet centrist diamond re-formed near the repressive authoritarian pole. Then from this unlikely position, the bullish mood behind Supercycle wave (V) unified Soviet society enough that it achieved remarkable success in its space program. The Soviets orbited the first satellite, Sputnik, in 1957; put the first man into space in 1961; and landed the first spacecraft on the moon in 1966.

In contrast, declining mood currently has one of the world’s leading democracies implementing authoritarian practices. In 2004, the British government’s own information commissioner warned that the country risks “sleepwalking into a surveillance society.” Since then surveillance has only increased, while the nation debates whether to accept the scrutiny.

Large-degree bear markets can lead to calls for freedom, authoritarianism, left-leaning and rightist solutions. Where a country ends up is unpredictable. What is predictable is that societies tend to look far different after major mood declines than they did before them.

Bear Markets Encourage Authoritarianism
Past issues note that the stock market is our best measure of social mood. Our studies also show that the complete U.S. stock record, with British data preceding, is an excellent meter of long term global mood. Such is the case with our study of authoritarianism. (For more on why U.S. stocks reflect global mood, see “A Socionomic Study of Russia,” November 2007 Global Market Perspective; call our offices for details.)...MORE
Here's the correlation chart.

Mr. Prechter is still the most bearish of the ursine analysts we follow with a sub 1000 DJIA call.
Sometimes his timing is off though. This post is from November 25, 2009:
Robert Prechter on Monday moved to 200% short
And was, I believe, the inspiration for March 2010's "Too True to Be Funny: 'Market Update: March 23, 2015'":
The DOW rebounded from a crushing six point opening sell off to close the day at 21,626, up 43 points for the day. The rebound came after there were reports, later denied, that European officials are working on a bailout for EU member Greece. Greece has been in a state of near suspended animation since debt woes struck the country in early 2010...

...Offsetting this somewhat were comments by perennial bear Robert Prechter, who advised clients to go 10,350% short in preparation for the arrival of P3. Mr. Prechter was interviewed by Bloomberg Fox Business News reporter Charles Gasparino from Prechter’s suite at the Bellevue Institute for the Perpetually Pessimistic. The two later dined together at Elaines....