Friday, September 3, 2010

Why the Stock Market’s Direction May Hinge on Katy Perry’s Next Hit Single

I am very excited to introduce Brett Owens as a guest blogger for FutureJacked.  Brett is one of those highly talented, multi-skilled guys who "do," not just dream.  He is CEO at Chrometa and blogs at The Contrary Investing Report and CommodityBullMarket.com and is one of the brightest minds out there in the community of men and women wrestling with the intersection of mood, markets and society.

Here is Brett's take on Why the Stock Market’s Direction May Hinge on Katy Perry’s Next Hit Single:

Last Friday on The Today Show, Katy Perry rocked the stage with a live performance of her summer 2010 mega-hit “California Gurls”. It’s bubble gum pop at its absolute finest:

  • “California Gurls might even be described as the token summer pop song, all bounce and fun” – The Tartan
  • “All bubble gum and candyland fun, its pure sugar-rush exuberance” – Montreal Gazette

Careful – this video might melt your popsicle…

Visit msnbc.com for breaking news, world news, and news about the economy

But could Katy’s calls to “put your hands up” also be a warning that you need to hit the “sell” button for your stocks ASAP?

Famed market forecaster Robert Prechter has been, over the last 15 years, pioneering research in a new field called Socionomics - a blending of “social mood” measurements, and economics. Prechter’s thesis is that the social mood of society rises and falls intrinsically, in wave-like patterns.

During waves up, people feel good about life, and they bid up stock prices. During waves down, the opposite happens – social mood declines, and folks dump their stocks. They get more conservative in business life as well, which creates a negative feedback loop of sorts – one that is only broken when the market finally bottoms, and mood turns up once again (as it inevitably does).

Socionomics has become a very intriguing, as well as controversial, subject in investing circles. New research and literature has emerged this year – leading the charge is a book I’m reading now by John L. Casti entitled Mood Matters: From Rising Skirt Lengths to the Collapse of World Powers. In his research, Casti looks at other potential “sociometers” – tools that can be used to measure social mood.

Central to the socionomics thesis is the sequence of cause and effect. Common sense and popular belief tells us that events happen in the world, which create subsequent effects. Like a hurricane hitting the coast causing widespread damage. Or bad economic news triggering a stock market decline.

Socionomics turns this traditional cause and effect sequence on its head. The cause in socionomics is the rise and fall in social mood. And the effect is the “news” that people gather as a result. Rising social mood results in “good news” – a rising stock market, peace treaties amongst warring nations, and general cooperation. And declining social mood has the opposite negative effects. The idea is that if you can tune in to the trend in social mood, you can gain an edge in anticipating future events, which are driven by this “hidden engine”, as Prechter calls it.

Pop music taste is something that both Casti and Prechter pay close attention to. The theory is that the instantaneous feedback of the Billboard Top 40 rivals the Big Board itself – whether it’s the most requsted songs on the radio, or the daily advance/decline ratio on the NYSE, both are effective measures of social mood.

In general, Casti and Prechter observe a correlation between stock prices and popular music tastes – for example:

  • Upbeat music during rising bull markets - Think upbeat rock & roll of the 1950’s and early-to-mid 1960’s (The Beatles, The Beach Boys), along with the general upbeat music of the 1980’s and 1990’s (Michael Jackson, Madonna).
  • Depressed and angry rock during the bear market of 1966-1982 (Led Zepplin, Pink Floyd).
  • “Bubble gum” pop hits during market tops – songs that express moods of outright euphoria (California Gurls)

The idea is that a turning point in pop culture may signal a turning point in social mood before stock prices. For example, in Prechter’s previous work, he’s cited the upbeat pop culture mood of the early 1980’s as a signal that the bull market was back on. And when social mood is outright euphoric, and stock prices are topping, other sociometers are also “off the hook”.

An interesting data point for you to chew on – the most famous version of California Girls is of course by the Beach Boys, the upbeat surfer dudes of bull markets’ past. They are back in the news, with rumors about a potential Beach Boys reunion to celebrate the upcoming 50th anniversary of their first single (from 1961, two bull markets ago). How about band member Mike Love’s take on Katy Perry:

And Love’s thoughts about Perry’s “California Gurls?” “I think the part she did is pretty cool,” he says. “There are a lot of writers on it, and I think it’s probably a stroke of genius to have the king of canine cool, Mr. [Snoop] Dogg, do his thing. But I think her creative part, her musical part, is pretty hooky. I think it brings the Beach Boys’ 1965 classic to mind, that’s for sure.” (Source: Billboard.com)

Ironically, their rendition of California Girls was topping the charts (1965) just before the epic bull market of 1942-1966 was about to roll over.

While the talking heads at CNBC are watching key resistance/support lines for the rangebound S&P, we’re seeing an equally polarized battle at the top of the music charts to end the summer. Leading the negative social mood charge is rapper Eminem, who has the current top spot with his bear market tailored hit Love the Way You Lie. You won’t confuse this tune with Katy’s sunkissed hit!

Just gonna stand there
And watch me burn
But that’s alright
Because I like
The way it hurts
Just gonna stand there
And hear me cry
But that’s alright
Because I love
The way you lie
I love the way you lie
I love the way you lie

And the actual music video is perhaps even darker:

Eminem’s current comeback may fittingly coincide with the return of the bear on Wall Street. He stepped out of the music scene altogether in 2005 – when the credit and housing bubbles were peaking in America, and everyone in this country was giddy getting rich by buying homes they couldn’t afford.

Eminem began mulling his return in September of 2007 – the exact month the S&P and DOW were about to start their plunges in excess of 50%. Perhaps Eminem sensed the initial decline in social mood, which historically has welcomed his darker rap style the best?

If we are indeed at the front end of a social mood downturn - what’s to become of our dear Katy? Fortunately for her, evidence suggests that she’s got the goods to succeed in periods of declining mood as well. Her 2008 single I Kissed a Girl – a tune of sexual confusion that was well suited to the plummeting social mood of 2008 – originally put her on the pop map. So, Katy may be actually better positioned for a potential bear market decline and mood shift than most bullish investors.

Perhaps us stock jocks would be best served to ditch our technical and fundamental analysis paralysis – screw the 200-day moving average, and key support resistance levels. More importantly – Hey Katy, what ya cooking up next?

Ed. note – A trimmed down version of this piece was syndicated by Minyanville.

Further Reading:

2 comments:

Phil said...

Long time lurker/reader, first time commenter.

You might enjoy my research on this topic, including a video:

http://philmaymin.com/academic-papers#music

Brett Owens said...

Hey very cool, thanks for sharing Phil!

Going to review in more detail, I'll probably ping you with a follow up, this is great stuff.