Thursday, March 27, 2008

Time to Re-Read Your Socionomics Texts

The almost monolithic happy-happy-happy mood that has dominated economic surveys for nearly a decade is turning sour. I've held off on commenting, mainly because surveys of such things as "confidence" often don't give you much information that is useful in the real world of trading stocks, of planning your financial future or of giving you a signal of when to maybe add to your emergency supply stash (you do have one, right?).

Well, a couple of items make me think that the herds of men and women that make up markets and political voting blocks (herds that include yours truly) are starting to move towards the negative end of the spectrum described by socionomics.

A few anecdotes for you to think about - feel free to add to this list with your own observations:
Consumer confidence crumpling
by James P. Miller, Chicago Tribune
...The Conference Board numbers, said Merrill Lynch economist David Rosenberg, "suggest that consumers are on the verge of the worst downturn since the 1970s." The Federal Reserve's interest rate cuts and pending tax rebates from the U.S. government "are proving no match for rocketing pump prices, intensifying real estate deflation, the worst financial crisis in decades and a deteriorating economic and employment backdrop," he said...

And, this one I found very interesting. Nassim Taleb's work on "black swans" is very interesting and a is a theory that is very much against the whole mindless "buy and hold" and "buy the dips" mantras that have been repeated to investors for the last couple of decades. Both the headline and the fact that the work itself is opposed to much of what Greenspan preached (well, mumbled in his incoherent style) throughout the 1990's and the early 2000's points to a shift in the attitudes of the editors at Bloomberg, however subtle -

Taleb Outsells Greenspan as Black Swan Gives Worst Turbulence
By Stephanie Baker-Said, Bloomberg
...Taleb argues that history is littered with high-impact rare events, known in quantspeak as ``fat tails,'' for their shape when plotted on a bell curve. He cites the Latin American debt crisis of 1982, the collapse of hedge fund firm Long-Term Capital Management LP in 1998 and the crash of the U.S. stock market in October 1987, to name a few...

Time to go to the library (your personal investment library or the public one in your community) and reread the basic texts on socionomic theory. More and more applications of that group of case studies and theoretical leaps are popping up every day.

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