Wednesday, June 20, 2012

Huzzah, the Market Says No World War III Today

We've visited Bob Prechter's Socionomics Institute a few times and find their output more interesting than the Elliot Wave stuff, links below.
From the Socionomics Institute:
History shows that negative social-mood trends, as indicated by bear markets in stocks, unfold in down-up-down Elliott wave patterns. But within such patterns, the first and second downtrends tend to produce qualitatively different types of social actions.

In large-degree bear markets, the second declines tend to produce major wars. That is not the case with first declines, when major wars are typically absent. 

Elliott Wave International believes the stock market is currently in the first decline of a larger-degree negative pattern. If EWI’s outlook is correct, then, World War III is unlikely to commence until after the second decline begins, decades in the future. 

Yet even first declines bring plenty of risks. The current Supercycle decline that began in 2000 has already hosted the 9/11 attacks, the wars in Afghanistan and Iraq, and multiple revolutions and protests. It is likely to spark more social conflict, but not global war. 

Socionomics per se cannot predict the specifics, but if you understand what to look for, you can spot the risks.
This report sketches potential risks facing us during the rest of the first decline, which is wave (a) under the Elliott wave model.
Figure 1
Why Big Initial Declines Tend NOT to Produce Major Wars
As you can see from Figure 1, none of these first waves produced major wars. In Chapter 16 of The Wave Principle of Human Social Behavior (1999), Robert Prechter hypothesized why this is the case:
Apparently society handles the first retrenchment in social mood, no matter how severe. “A” waves surprise optimistic people, who are unprepared and unwilling to wage war. It is the second drop that makes a sufficient number of increasingly stressed people angry enough to attack others militarily.1
The largest-degree bear markets of the past several hundred years all began with intense deflation. The three largest deflation episodes in the past three centuries were in 1720-1723, 1835-1842 and 1930-1932—all of these occurring during first waves in large-degree negative social mood trends. Figure 4 in the September 2008 Global Market Perspective Special Report (click here to download the report) includes an index that shows periods of strong inflation and deflation....MORE
What's Robert Prechter Been Up To? Fear, Submission and the Authoritarian Impulse
Stocks and Sex: A Socionomic View of Demographic Trends