Friday, January 22, 2010

Socionomic Trendspotting 2010 - The Gritty Reboot

What a year 2009 turned out to be. From the depths of despair in March to the Waterloo of the Bears by October, it was a great example in how emotions trump reason. By giving a rationalization for playing extend and pretend, by using the Fed’s balance sheet to soak up vast amounts of toxic paper assets and by extending the full faith and credit of the United States to vast new degrees of indebtedness, the emotional impulse towards optimism that pulled us off the lows in early 2009 have led us, inexorably, to the edge of the precipice that will be 2010.

The rally mood is still in the air. I am personally as busy as I've ever been at my day job - which is driven by research and industrial activity. Every project I take on makes me wonder if the effort is really worth it. Then I remember that my timing has not been great in the past on big turns and I get to work. I think 2010 may be "it" though for a lot of activities across this fine land of ours.

Recall that my interpretation of the Socionomic Model is that mood makes markets and markets make opinions. Emotions drive all. Understand that the causality we have all be taught to believe in is false and you will be miles ahead of everyone else when TSHTF.

Below are some trends or emotional themes I expect to flavor the coming year. Be aware off the bat that I never expected the rally to carry on this long. My timing may be off, but I think the declines out of 2008 into early 2009 have shaped the early parameters of how the coming catastrophic decline will be expressed and I think we can use those lessons to prepare ourselves to move quickly once events begin to unfold and to provide us with some sort of map to work by while others stand in gape-mouthed awe at the enormity of this coming crash.

The Gritty Reboot

The theme of a “gritty reboot” should be prevalent in all walks of life. I take that concept from an interesting bit of Hollywood ephemera. It looks like Sony is going to do a “gritty, contemporary reboot” of the Spiderman movie franchise – one of the biggest movie franchises going at the moment. Socionomics calls for this, of course. In eras of dominant negative mood, movies tend to turn dark (see Chapter 15 of The Wave Principle of Human Social Behavior for more details). What I find very interesting is the quote out of Sony:

…The decision to go with an origin story stemmed from Sony developing two Spidey projects simultaneously. According to studio insiders, Sony was working on both Raimi’s Spider-Man 4 and the new origin story from James Vanderbilt, who wrote Zodiac. The original plan was to keep the Spider-Man gang together for one last film in 2011 before rebooting the series in 2012. When it became clear that Raimi would not be able to make the summer 2011 release date planned for Spider-Man 4, the studio opted to scrap Spider-Man 4 altogether, and focus solely on the series reboot…

The studio had two choices – continue with the series that unfolded during the rally years, kicking off in 2002, then hitting big in 2004 and bigger in 2007, a formula that had generated massive amounts of money for them or to scrap that direction for the franchise and go darker and grittier. If Sam Raimi had studied his Socionomics, he would have had a clue which way the studio bosses would lean.

I expect a lot of things will get a gritty reboot. The financial crisis will return as toxic assets that were papered over and wished away return to devastate financial firms. This time, the financial firms will have no more silver bullets to spend with Congress. I expect that the utterly amazing fact that none of these financial geniuses who helped create a system that has endangered the very fabric of “division of labor” free enterprise in this country with its potential collapse have been hauled up for trial as of early 2010 to change and instead of getting hundreds of billions in backstop funding, many financial luminaries will be vigorously pursued as criminals.

Expect neighborhoods and your cities to get a gritty, 1970’s-esque reboot as well. If you haven’t noticed, state and local tax receipts are cratering. Speaking of craters, expect your roads to have more of them as cash dries up.

Gritty living conditions should arrive for many millions of Americans later this year. Whether it is because families are reduced to homelessness, living in cars or campgrounds, or just not being able to afford upkeep on their homes, the coming devastation to family balance sheets is going to leave an ugly scar across the land. For those looking for opportunities to keep their communities healthy, if you have capital or even food to share, maybe consider funding local cleanup crews. The emotional impact of a devastated ghetto versus a tidy, if shabby, neighborhood cannot be overstated.

Expect politics to get gritty as well, if not violent. I think we will see a patchwork of responses to the coming crisis. Some communities will ease into a seedy, alcohol-soaked inertia, as many areas of Russia have seen since the collapse of the Soviet Union, while others are gripped by explosions of violence as groups of people channel their anger into action. Choose your action items here – invest in local booze production or get your reloader ready.

The Show Trials Begin

This may take until the end of the year, but I think that the legalistic culture of the United States will find natural outlet in show trials of “them” as the financial and social system unravels. Financiers, banksters, lobbyists, politicos on the wrong side of the current mob opinion and worker-bees of the Big Government Machine will find themselves hauled before tribunals or special courts founded to investigate the devastating wave of bankruptcies and financial hooliganism that will be running rampant as 2010 unwinds.

The Wall Street types will be especially vulnerable to this as the chieftains of finance have shown zero political acumen in handling the fallout from the 2008 market seizure. I expect little more from them when 2010 presents them with a full-blown systemic stroke.

One of my favorite windows into the squirrely little minds of these Masters of the Universe is the blogger over at Epicurean Dealmaker, whose writings I heartily recommend. As he puts it, when discussing the recent Congressional testimony of some Wall Street banksters:

Let there be no mistake: Mr. Dimon, Mr. Mack, and Mr. Blankfein are not stupid or uninformed. (The jury is still out on What's-his-name.) They are damn smart; scary smart, in fact. You don't get to the top of the greasy ladder of a major global investment bank's executive suite by being dull, incurious, or lethargic. People like that get sliced to ribbons and thrown into the chum bucket in my industry before they reach Managing Director, if they ever get inside in the first place. These guys got game, people. Serious game. You would be foolish to doubt it...

…[they] have absolutely no interest whatsoever in the whys and wherefores of the financial crisis, the proper size and role of banks and investment banks in the domestic economy, or the moral imperatives inherent in stewarding the financial plumbing undergirding the daily lives and livelihoods of six billion people. For one thing, they don't have time to worry about such things. Most of a senior bank executive's time is consumed competing against other scary-smart investment bankers and executives at other firms, who are hell-bent on grinding his bones into dust beneath their bloody heels, while trying to prevent his own firm from flying apart under the internal stresses generated by thousands of egotistical prima donnas all scrapping for more than their fair share of the pie. There is too much going on, and unrelenting change comes too fast and furious to allow quiet contemplation of the order of things…

…because the volatile, high velocity nature of the business attracts such people—the people who go into the industry are not really interested in thinking deeply about why things are the way they are. You will almost never find an investment banker "sicklied o'er with the pale cast of thought." It's just not in their genetic makeup to be reflective, introspective, or speculative in an intellectual sense. Investment bankers have almost no interest in why things are the way they are. Rather, they spend all their considerable intellectual and psychological resources on understanding how they can take advantage of the way things are…

And, what I consider the money quote:

…People still make fun of Chuck Prince's 2007 pre-crisis assertion that “As long as the music is playing, you've got to get up and dance.” Chuck Prince was a boob, and in way over his head, but he was not wrong. Had he even contemplated bowing out of the dance, shareholders, employees, and yes, probably even regulators would have strung him up with piano wire so fast even Mr. Krugman's head would have spun. Investment bankers' job is to surf the wave of financial and economic activity and make money from it, not convene a committee to discuss the design of dikes and levees.

That is the job of regulators, politicians, and public intellectuals like you, Mr. Krugman. So get crackin'.

We'll be over here in the corner, making money, until you get back to us… (Emphasis FJ)

Rest assured, the mob, whether led by NY Attorney General Cuomo, some upstart in Congress that we have not yet heard much of or some Federal DA, will get back to the bankers. The end result will not be pretty. People will want scalps and these jokers are the most blind scions of privilege seen strutting and preening on the world stage since the French Revolution.

I have no doubts the ancestors of Messrs. Blankfein, Prince, et al were busy hovering around the French Court during the last days of King Louis XVI, rushing about, bribing officials, getting the best tax farming positions available, wheeling and dealing for privileges, power and money – all the while oblivious to the game changing revolution that would swallow them whole.

If possible, get a cable or satellite package with C-SPAN on it. The show trials should be educational, if nothing else.

The U.S. Nation-State Hollows Out

That the coming crash will challenge the federal government’s finances and totally devastate most state, county and local balance sheets is pretty much baked in to the coming crisis. What happens when government employee checks start bouncing and when services are slashed or privatized will color the latter part of 2010.

My default tendencies lean towards free markets and limited government. What we may face, though, could be a fa├žade of free enterprise via the privatization of local services that turns said services into monopolistic fee extraction companies that feast on taxpayers who are then forced to deal with these enterprises under force of law – which itself might be farmed out.

I want to think more on this topic, but think about how private companies have used the federal government and the Federal Reserve to loot U.S. taxpayers to avoid suffering the consequences of their stupidity during the late great credit bubble. Then play out similar scenes at a local level when companies take on more responsibilities currently held by government, but without competition and with the ability to have laws rewritten to force people to use their services in certain ways.

I guess I really worry about a formalization of the slow corporate coup that has been ongoing, whereby governments are not taken over per se, but where the decision making and legal enforcement apparatus is co-opted and used to steer loot to the coffers of the coup masters. Please review how the SEC has behaved over the last 20 years for a great example.

Memes We May See

What wild urban legends will erupt and what destructive behavior will overtake millions as the observations of socionomics get played out across the United States in the coming year?

I missed on my thought that the “bandos” meme would take wing last year. I figured squatting in abandoned houses would be all the rage at the moment. It never occurred to me that a quiet decision would be made by many banks to not foreclose on many people who have fallen behind in their payments as a way of not realizing the losses inherent in their loan portfolios. Maybe that changes this year? I would think so.

Cults should make a big comeback. You angry gurus out there should begin to find fertile ground in the coming months. I figure the regular sort of religious dissenters should grow some, as will splinter groups from mainstream religious outfits. Where will the fringe go? Some sort of fusion of New Ager mysticism with ethnic supremacist groups? UFO contactee groups who shift from an optimistic “Space Brothers are here to help us” point of view to angry, “we are the vanguard of the aliens come to clear human scum off the planet” or something like that? I figure eco-terrorism might get a boost as well. On the more productive side, many of these splinter groups may eschew violence and replay the Back to the Land movement from the 60’s. A lot of good work will probably be done by Transition Towns and permaculturist types. Being able to grow your own food may come in handy should restrictions on travel be imposed – either government dictate or some overseas troubles that reduce oil imports to the U.S. (look to Mexico as a potential blow-up, followed by Venezuela, Nigeria and the Middle East – if Israel bombs Iran, all bets are off on being able to predict oil imports).

I also think the 2012 meme may find purchase in many minds this year. It seems to be a growing niche on fringe web sites that it will mark some sort of pole shift, massive electrical storm or some over world-ending event. End of the world fever seems to wax and wane. Looks like we may see it begin to wax strongly again in the coming years.

Gang wars should erupt in places you don’t expect as well. High unemployment for young men, combined with anger and access to firepower should make for a volatile mix in many small cities and large towns, not to mention large urban areas. Maybe you could start a bullet-proof glass and steel door installation business to adapt.

2010 and Beyond

My assessment is that 2010 will see the crash that forces people to understand just how rotten the infrastructure of commerce and governance has grown in the U.S.

Some will go mad. Some will sink into lethargy. Some will rise up in pointless anger to kill and be killed. Others will husband their resources, help their communities, reconnect with their families and friends and lay the groundwork to build up something new from the ashes that will be left once the raging conflagration that will erupt again this year is done burning down the world we have all grown up in.

Good luck.


fool53 said...

"It never occurred to me that a quiet decision would be made by many banks to not foreclose on many people who have fallen behind in their payments as a way of not realizing the losses inherent in their loan portfolios. Maybe that changes this year? I would think so."

I haven't seen any writings on the mechanics of this.

There will be millions of defaults and a vacuum of vacant homes. So who will move in? First, there will be few loans available for new occupants. Second, most everyone who wants to "own" a home and has been able to get a loan already "owns" one. It was easy thanks to the numerous government agencies (fannie, freddie, fha, etc). People who view themselves as responsible and haven't bought a home that they view as affordable will be far fewer than the number of newly vacant homes and why would they want to get a loan as prices are tumbling, unless they can pay cash. But there will be much carnage for those who have already paid cash for foreclosures. They think they got a sweet deal, but they have bought at the top. The top of P3 that is. Stocks still need to lose 90%+ of their current value. It won't be long until they see their error.

Third, those evicted will have to rent, but landlords are in the same situation as homeowners. They bought their rentals with loans and will have their own solvency issues. It will be a lot more difficult to collect rent during a severe depression.

So what are we going to do? Throw millions of families into the streets? Should they rent from landlords who have defaulted? Those who own their homes outright are from generations long ago - like my parents and grandparents. Those who happened to be born in a different era have the luxury of home ownership and the younger generations just aren't that lucky.

Who really owns these homes? Banks that printed money out of thin air and lent irresponsibly? That's not hard to do. Do they actually have the moral right to foreclose? Banks will be hit from all directions. Obama has already started.

I'm seeing issues. I'm seeing someone going nuts and ambushing the sheriff who tries to enforce the foreclosure. Should be interesting.

Flagg707 said...

@fool53: "'It never occurred to me that a quiet decision would be made by many banks to not foreclose on many people who have fallen behind in their payments as a way of not realizing the losses inherent in their loan portfolios. Maybe that changes this year? I would think so...'

I haven't seen any writings on the mechanics of this."

I don't have the hard data I'd like, but the anecdotal data indicate a small but significant number of "bank walkaways" are helping keep an unofficial floor on the prices in some neighborhoods and, by vacating the foreclosure process, a bank can avoid writing down the loan for awhile longer.

I may be overstating the problem, at least at the moment. I was not as clear as I'd hoped on my opinion that the banking industry is still reeling from the woeful underwriting practices of the mid-2000's and is not sure what to do with a significant number of loans carried at par that are obviously worth far less.

I hope we'll have data this year. Case Western is supposedly doing a study on this phenomenon.

A couple of anecdotal points:

fool53 said...

I'm not sure if data will work :-) What we are dealing with is a once in 300 year state of collective conscience, but it's also coupled with the largest debt bubble in the history of mankind. So what unfolds seems that it should be unprecedented, although not Armageddon.

Greg B said...

If it the Greater Crash of 2010 occurs, I wonder if many will just emotionally shut down and "hibernate" through it? Holed up in the house, unemployed or in constant fear of it, watching TV, and living on Hamburger Helper...

If so, a shabby home exterior may be a good way to keep a low profile. Shabby house = somebody with no cash inside. Maintained house = somebody with cash inside.

For those who don't shut down and "hibernate" (perhaps because we knew before that winter does come and go) the big question becomes what to do until Spring. Really hard to plan for a 5 year economic winter...

Thanks Mike for sharing your ideas!