Happy Campers

Ever had the experience? You start talking on a topic – something that you know is the bomb – it’s got eclectic details, it puts together facts that everybody knows, or feels that they know – but it puts them together in a different order. It makes you look at the world backwards.

Only problem, when you bring the subject up, everyone, even your best friend, looks at you like you’re, er, off your game – so you take the signal that, if you keep pressing, you’ll diminish yourself. That you won’t be taken seriously no more.

I get that feeling a lot these days – whenever I talk about social moods.

About a year ago I saw a programme – it was a documentary – all about New Labour focus groups. This guy from the States – Mark Penn – was asking groups of people in the UK what they thought about all sorts of issues. And Mark Penn is a pro – he wrote ‘Microtrends’ – which is a cracker of a book, and which gives you a better understanding of issue politics than anything I’ve ever read. It convinced me that Bush won his second term because he knew, or because Karl Rove knew, that to say a certain thing to Hispanic Protestants at a certain time would gain sufficient votes to win the presidency. Go figure that. You have to know, for a start, that there’s such a thing as Hispanic Protestants, how many there are, where they are, and what they think. In the sordid world these politicos occupy, that was $1bn information.

So, a year or so ago, Mark Penn asked some Brits in a room what they thought. And I was stunned. There was an incredibly negative response. They thought politicians to be deeply untrustworthy, and that the environment was on the brink of collapse. And this was at the very point that the UK was booming, house prices were flying, and the Morgan Stanley index of global stocks was within a hair’s breadth of an all-time high. This was deeply dissonant. Most often, politicos are feted at this point. Clearly, this is no Camelot. And remember, the sins of Camelot were a bunch worse than the sins of today. It’s just that they were forgiven (See Seymour Hersh’s ‘The Dark Side of Camelot’).

One example – data just released through the Freedom of Information Act shows that Gordon Brown claimed £100 too much on a cleaning bill. He has the lowest rating of any prime minister in two generations. But it’s not exactly the Bay of Pigs.

And what that documentary got at early a year ago – soon nobody would like Gordon Brown. Apparently, he only communicates by e-mail. Something of a bunker mentality appears to be setting in.

So, the topic is this – mood – the mood that folks are in - determines everything.
The system is – mood first, then market, political and cultural scene (papers, then TV, then movies), then economic scene, then market again. It all feeds back.

But this is where the trouble lies. Because, we always want a direct, causal link. But moods are, er, moody. They are often hard to predict. The trick is to spot them early, especially when they run against recent market moves.

So here are a few comments on social mood as gathered by your intrepid South London reporter;

1. We’re seeing a return to the ‘survival’ themes of the ‘70s but with a twist – now, rather than spend £30 on cans of baked beans, you spend £220 on a Ray Mears survival course in Sussex. Ray’s view; ‘Society will need these skills again’.

2. Yesterday’s Evening Standard had two articles on growing your own food, and four on saving money.

3. Kath Kitson issued a ‘trendy tent’ four years ago, sales are now rocketing. Our mates are going camping.

4. Incumbent politicians are in the doldrums. Even Sarkozy, on the face of it the most charismatic European politician in a generation, is up against the wall.

5. There is a sudden influx of anti-heroes. Vic Mackey from ‘The Shield’, MacNulty from ‘The Wire’, Daniel Day Lewis in ‘There Will be Blood’. The bloke with the funny haircut from ‘No Country for Old Men’.

6. Posh Spice is selling her new range of jeans – featuring £300 couture denim flares.

7. Breakfast TV runs regular segments with a guy telling you how to save money, and some other bloke explaining how to forage for borage.

8. Most of the pros in cricket defended sledging in a documentary out last week. Cricket has turned from the gentleman’s game to a ‘badboy’ sport.

9. Ok – this is a bit subjective – I reckon about 20% of drivers round the Elephant & Castle run the lights.

10. Clint Eastwood, the 70s icon, has directed a movie about a child abduction in 1928 – coming to your screens soon.

11. That’s enough social comments, Ed.

Probably the best dissection of the feedback loops between social mood and the markets is Robert Prechter’s ‘Pioneering Studies in Socionomics’. He’s got a great table showing everything from trends in sports attendance to themes in pop music – and what types of markets they coincide with. Robert Prechter is the Dean of Elliot Wave Theory. One of his problems is that his disciples often let him down.

A lot of technical analysis is too short term, is constantly ‘reviewing the wave count’ and says things like ‘if the market goes down below 1400, then it will go down to 1360, unless it’s a false breakout’. Prechter himself has something much deeper to say. His argument is that the market does not, as most believe, discount the future. If it did, how would the extreme overvaluation of tech occur in 1999? Or for that matter, the strong rally from March to June last year – as evidence of deteriorating credit conditions was mounting?

His view, simply, is that the market is an index of the current social mood. And it is the social mood now that drives the fundamentals in the future. His believes that markets and social moods move in waves. Certain types of markets correspond to certain types of social mood – and so, by observing the mood, and characterising the market, you can raise your odds of calling the next major trade.

A third wave up corresponds with fantastic macro fundamentals and an improving social mood. A fifth and final wave up with credit growth, less robust fundamentals than wave three and greed. 1948-1965 was a third wave up, as was August 2004-April 2006. 1982-2000 was a fifth wave up, as was July 2006-June 2007. As you can tell, these patterns work over any timescale – from years to decades.

After a peak, there is a jagged decline – a fall, a new rise, and a further fall to new lows. How do you know that the bounce isn’t the start of something bigger? You check the social mood. It tends to be dissonant. That’s exactly what we have now.

So if you follow this view, and I have to say I’m getting partial to it, you’d say it was a good risk/reward bet that we now break the March lows. Prechter’s view is much more aggressive – he believes that social mood became so extreme by 2000, after a 130 year climb, that we are now going to retrace the entire gains, in real terms, from 1982.

Happy camping!