"Why do societies fail? With lessons from the Norse of Iron Age Greenland, deforested Easter Island and present-day Montana, Jared Diamond talks about the signs that collapse is near, and how -- if we see it in time -- we can prevent it."
By C.W. Smith | July 23, 2012
As the Presidential election season heats up, the Social Science Research Network (SSRN) reports that the study, "Social Mood, Market Performance and U.S. Presidential Elections" has earned the #7 spot among the top-downloaded papers in 2012.
The SSRN eLibrary is one of the world's leading social science resources, and includes 430,000 paper abstracts from 200,000 authors. It has delivered close to 56 million downloads, and last year it received over 66,000 new submissions.
Among those submissions: the elections paper written by a team from the Socionomics Institute.
Authored by Robert R. Prechter, Jr., Deepak Goel, Wayne D. Parker and Matthew Lampert, the study amounted to a bold challenge to age-old conventional wisdom regarding what factors predict presidential re-election outcomes.
"We demonstrated a counter-intuitive point about what matters, what doesn't and why," Prechter said.
Historians and political scientists have long argued that gross domestic product (GDP), unemployment and inflation have great bearing on presidential elections. So Prechter et.al. tested those ideas. They studied every presidential re-election campaign dating back to George Washington's in 1792. And what they found was amazing.
"GDP was a significant predictor in some of the simple models," said Deepak Goel, "but it was rendered insignificant when we combined it with the stock market in multiple regression analyses. Inflation and unemployment had no predictive value in any of our tests."
So what does matter?
The stock market. Specifically, they found that stock prices for the three years prior to Election Day greatly influence elections. But the twist came when they examined the question of whether or not money made or lost in the market had any effect.
"We contrasted eras when stocks were widely owned vs. hardly owned, and there was no difference in results," Robert Prechter said.
They ruled out GDP, unemployment, inflation and money made or lost in the market as factors. That left only one. Matt Lampert explained:
"The best explanation is that the trend of social mood is important in driving the valuations of both stocks and presidents."
The only question left is: who's going to win?
If you would like to receive the best of Social Mood Watch and other free socionomics content each week, sign up here.
This article is syndicated by The Socionomist, a publication of the Socionomics Institute, and was originally published under the headline Social Mood and Elections Paper Among Top 10 Most Downloaded from SSRN. The Socionomist is designed to help readers understand and anticipate waves of social mood. Copyright © 2012 Socionomics Institute.
Third waves are "wonders to behold"
July 27, 2012
By Elliott Wave International
Financial markets always have and always will pose two basic questions that investors seek to answer:
- What's the direction of the main trend?
- How far will it go?
Systematic approaches to these questions commonly belong to either fundamental or technical analysis. Let's consider each one briefly.
Fundamental analysis studies how a market behaves in response to external influences such as earnings, sales, competitive outlook, economic outlook and the like.
Technical analysis studies a market's internal behavior -- mainly price, but also internal measures like volume.
Elliott wave analysis is a branch of technical analysis, specifically
In the 1930s, Ralph Nelson Elliott discovered that stock market prices trend and reverse in recognizable patterns...Elliott isolated five such patterns, or "waves," that recur in market price data.
Elliott Wave Principle: Key to Market Behavior
In a five-wave progression, the third wave is the most powerful.
Third waves unfold in bull and bear markets alike.
Elliott Wave Principle
(p. 80) describes a third wave in a bull market:
Third waves are wonders to behold. They are strong and broad, and the trend at this point is unmistakable...Third waves usually generate the greatest volume and price movement and are most often the extended wave in a series. It follows, of course, that the third wave of a third wave, and so on, will be the most volatile point of strength in any wave sequence.
Third waves can be more powerful during market declines because fear is a stronger emotion than greed.
Look at the third wave on this S&P 500 chart which published in the January 2009
Elliott Wave Financial Forecast. Notice that prices dropped like a rock, plunging well over 600 points in less than a year. (The third wave starts where the chart shows (2) and ends at (3)):
You can see on the chart that the S&P 500 had rebounded after the third wave had bottomed. Even so, the chart's title states that there was "Room for a New Low." Indeed, after the rebound which was wave (4), wave (5) took prices to a March 6, 2009 intraday low of 666.79.
How about now?
That depends on who you ask.
On July 10, CNBC reported on the sentiment of a chief market strategist of a capital management firm:
Ever the optimist, he is holding to his market call this year for the S&P 500 to hit 1,500.
A principal of a financial advisory firm and guest columnist for Marketwatch wrote a July 10 article titled "Stock charts don't lie: the trend is up." The article says:
Shares continue their winning ways, technically. The averages show a stair-step series of higher highs and higher lows, the definition of an uptrend.
By contrast, the latest Financial Forecast flat out says:
The stock market is nowhere near a lasting low.
Why does the Financial Forecast differ from the two opinions above?
Because Elliott analysts know that during a market downtrend, second waves can convince investors that the rally is a new bull market.
That can be a financially dangerous mind-set.
Optimism precedes third waves lower. Then, seemingly out of nowhere, a third wave can commence with unrelenting violence and speed.
In the chart above, you saw the optimism-driven rebound just before prices plunged.
Do not expect the financial media to provide you with advance warning of a third wave. The crowd is almost always on the wrong side of the market. Third waves arrive unannounced.
Banking Titans Call for Break Up of “Too Big to Fail”
The following bankers are calling for the big banks to be broken up:
- Former Citi CEO Sandy Weill
- Former Citi CEO John Reed
- Former Citi chairman Richard Parsons
- Former Merrill Lynch chairman and CEO David Komansky
- Former Morgan Stanley CEO Philip Purcell
- Former managing director of Goldman Sachs – and head of the international analytics group at Bear Stearns in London- Nomi Prins
- Numerous other bankers within the mega-banks (see this, for example)
- Former Natwest and Schroders investment banker, Philip Augar
- The President of the Independent Community Bankers of America, Camden Fine
Top Economists and Financial Experts Agree
It’s not just bankers.
The following top economists and financial experts believe that the economy cannot recover unless the big, insolvent banks are broken up in an orderly fashion:
- Nobel prize-winning economist, Joseph Stiglitz
- Nobel prize-winning economist, Ed Prescott
- Nobel prize-winning economist, Paul Krugman
- Former chairman of the Federal Reserve, Alan Greenspan
- Former chairman of the Federal Reserve, Paul Volcker
- Former Secretary of Labor Robert Reich
- Dean and professor of finance and economics at Columbia Business School, and chairman of the Council of Economic Advisers under President George W. Bush, R. Glenn Hubbard
- Former 20-year President of the Federal Reserve Bank of Kansas City – currently FDIC Vice Chair - Thomas Hoenig (and see this)
- President of the Federal Reserve Bank of St. Louis, Thomas Bullard
- Deputy Treasury Secretary, Neal S. Wolin
- The former head of the FDIC, Sheila Bair
- The head of the Bank of England, Mervyn King
- The Bank of International Settlements (the “Central Banks’ Central Bank”)
- The leading monetary economist and co-author with Milton Friedman of the leading treatise on the Great Depression, Anna Schwartz
- Economics professor and senior regulator during the S & L crisis, William K. Black
- Leading British economist, John Kay
- Economics professor, Nouriel Roubini
- Economist, Marc Faber
- Professor of entrepreneurship and finance at the Chicago Booth School of Business, Luigi Zingales
- Economics professor, Thomas F. Cooley
- Economist Dean Baker
- Economist Arnold Kling
- Chairman of the Commons Treasury, John McFall
Click here for background on why so many top bankers, economists and financial experts say that the big banks should be broken up.
Growth in 2012 'inconceivable':
Relentless focus on the economy required:
Economic plan failed:
After Sandy Weill said we should break up the big banks, congressmen and reporters are suddenly waking up from their stupor to ask tough questions.
For example, a reporter on CNBC asked Geithner about Weill’s statement:
Congressmen on The Hill questioning Tim Geithner had a new song to sing — ‘let’s take a look at Glass-Steagall’, a law repealed during the Clinton Administration that separated investment banking from retail banking.
The crazy thing is, this song was coming from both sides of the aisle.
Representative Carolyn Maloney (D-NY) mentioned Weill’s comment in her opening statement to Geithner and that got the ball rolling. She said that his words were “absolutely huge,” and asked Geithner to write a report on how 2008 could have been prevented had Glass-Steagall been enacted at the time.
After that, member after member picked up the torch.
Representative Walter Jones (R-NC) said that he regretted two votes during his time as a Congressman — the Iraq War and repealing Glass-Steagall. “Isn’t it time to have a discussion and debate about reinstating Glass-Steagall,” he asked.
Michael Capuano (D-MA), a fiery member of this committee to be sure, said “funny how people who voted to repeal Glass-Steagall are now complaining that banks are too big.”
Again on the Republican side, New Mexico’s Steve Pearce started his questioning of Geithner by saying that he wanted to add his voice to Maloney’s when it came to getting a report on how Glass-Steagall would’ve made things different in 2008. He then asked Geithner, “why should the people of New Mexico trust you or your policies?”
"Successful market timing depends upon learning the patterns of crowd behavior. By anticipating the crowd, you can avoid becoming a part of it."
This quote is from the opening paragraphs of the free Elliott Wave Basic Tutorial. It's critical to your understanding of how markets really work.
You might wonder what's so wrong with being part of the crowd. Unfortunately, the crowd usually shows up after a majority of the market move has occurred, when it feels 'safe' to join in the group. Then the crowd hangs on as the market turns and the losses pile up. Think back to 2008-2009. How many people do you know that rode the market right back down and got out closer to the bottom than the top?
To be a successful individual investor, you must understand what it means to take risks when the probabilities are with you and shun risk when they're not. Robert Prechter's method of analysis, the Elliott Wave Principle, can help you do just that.
I encourage you to learn more about this method in Elliott Wave International's free Basic Tutorial. It's broken up into 10 lessons across 50 pages, so it's easy to read and review at your leisure.
Get 10 lessons that will change the way you invest forever. Click here to download the free Elliott Wave Basic Tutorial now.
"The Irish government has refused to rule out adopting measures proposed by the International Monetary Fund to cut Child benefit and medical entitlements for some sections of Irish society."
"Europe has reached the end of the road, so it needs to take bold steps to stem its deepening economic crisis. "