What Does Socionomics Say About Deflation and the Greater Depression

By Delwyn Lounsbury - THE DEFLATION GURU

Robert Prechter, President of Elliott Wave International, has written about a new study of socionomics in his book, The Wave Principle of Human Social Behavior and the New Science of Socionomics (1999). In the book he predicted a negative social mood change era evidenced by fear, xenophobia, pessimism, conservatism, thrift, savings and a general retrenchment. It is a waning instead of a waxing. He is also on record saying the GREATER DEPRESSION started in 2000 with the dot com bust and may last into 2016 with a 90% drop in most assets and 30% plus unemployment rate and finally that world war three started 09/11/2001.

Xenophobia is the fear and loathing of strangers. Xenophobic trends increase as economies regress into deflation and people’s attitude turns sour. In a deflation economy, people in general become afraid and therefore hateful of strangers. The mood of the total populace wanes. Pessimism rules.  It is starting to gain momentum

People are rabidly against the Manhattan Muslim mosque being built in New York City. A recent poll asked the question: Is it appropriate to erect a Mosque and Islamic Community Center close to the 9/11 site? 37% said "yes" and 62% said " no."  To me this mosque situation is a symptom of peoples mood change to pessimism. Fear and herding are both important socionomic factors. Man is a herd animal and the herd does not want the mosque there. President Barack Hussein Obama Junior is doing a "Wag the Dog" by putting so much attention on supporting the Manhattan Muslim mosque. To "Wag the Dog" is a euphemism for when a politician starts a war or does some other diversion to get the heat off his back. President Barack Hussein Obama has a sick deflation economy and his Democratic Party is in trouble in the 2010 midterm elections.

In addition to xenophobia, during a waning mood swing society does not start new businesses, loan money or invest. The retrenchment we are having is textbook Robert Prechter Socionomics. According to him, socionomics is a marriage of sociology and economics that sees societal mood swings from positive to negative and back again as the driving force behind booms and a deflation economy. Also, the likelihood of war increases in the down-swings like we are having now. Man is a herd animal so he can't help following the herd. Not the way to invest, by the way. Buying more as prices go up and buying "hand over fist " at price peaks. Socionomics has to do with the change in the mood and minds of man from positive to negative. Man is a herd animal. So, he would get thrown out of the cave by the clan if he didn't get along.

In THE WAVE PRINCIPLE OF HUMAN SOCIAL BEHAVIOR (see pp.342-343)
it describes how the focal point of financial theory changes from exogenous (rising oil prices, turmoil the middle  east, climate change to the earthquake/tsunami in Japan) to endogenous causes as the economy and asset markets move from bull to bear.  An article from the March 21, 2011 Washington Examiner says the percentage of Americans worried about global warming fell 15% since 2008.  "In 2008, there was a gaping 50-point spread between those who believed global warming had already started to occur (61%) versus those who didn't think it would ever happen during their lifetime (11%).  By 2011, the gap had narrowed to 31%."  You will see global warming disappear as an issue in the next bout of deflation, as gluts for everything but cash happen.  People will have more pressing things to worry about other the WEATHER.  Like SURVIVAL!

Prechterhttp://www.deflationeconomy.com/robert-prechter.html">Prechter> also wrote the books: The ELLIOTT WAVE PRINCIPLE (1978), was written by Robert Prechter and A. J. Frost, C.F.A., about Ralph Nelson Elliott’s discovery in the 1930s that prices trend up and then reverse in recognizable patterns. Robert Precther's other books CREST OF THE TIDAL WAVE (1995) and CONQUER THE CRASH (2002) are both about deflation and the coming GREATER DEPRESSION.  All three books discuss socionomics.http://www.deflationeconomy.com

Prechter says fundamentalist logic always makes sense and feels right even though it is wrong (people follow the herd and buy at tops and sell at bottoms).  Socionomic thinking feels wrong even though it is right (the theory of contrary thinking has never been disproved).

Prechter says markets and indeed all nature is governed by the golden ratio or golden number (phi) .618. Prechter reports that the basis of this theory is in the study of Fibonacci numbers and fractal relationships. He has found evidence throughout nature - even down to subatomic particles that validates his discovery. Remarkably, he has found investment markets follow Elliott Wave, socionomics, Fibonacci(one number added to the previous number 1,1,2,3,5,8,13,21,34,55-and so on), and fractals in predictable patterns that can be used to make investment decisions.

FRACTICALITY, FIVENESS AND FIBONACCI
When analysts talk about the .618 retracement level they are referring to Elliott Wave and Fibonacci number ratio studies and points where markets often make a turn. Important Elliott Wave Fibonacci turning points are .382 - .50 - .618(phi also known as the golden number, golden mean or golden sextant ruling all) - 1.382 - 1.50 - 1.682. Not enough attribution is given to this important number although awareness is growing in the investment and financial world.

The socionomics book is an explanation of Elliott Wave Principle of (5 waves impulsive then 3 waves retracing) relating to Prechter's marriage of sociology and economics.

Robert Prechter has found many instances of Fibonacci, and fractals in nature and in human relationships along with Elliott Wave Principle including:

1. Most anything that can have statistics gathered and then charted will show 5 waves with a 3 wave reaction.

2. Spirals in seeds, hurricanes, sheep horns, snail shells if you do the math are Fibonacci numbers.

3. Branches in trees, arteries, brain, lung, nervous system and vein construction. Phi apparently allows more efficiency and robustness.

4. Stock, bond & commodity markets in short and long time frames Since man is a (herd) animal and the stock market is a compilation of the work and industry of a mankind in total, the charts of these financial instruments show Elliott Wave Principles, fractals and Fibonacci in looking back and predicting future (retracement levels).

5. 5 pointed star or a spot on a line all the math is Fibonacci related.

6. Social man - self organizing progress ruled by Fibonacci mathematics because it allows the greatest efficiency and robustness. Precter has tracked use of words such as deflation and found they fit the 5 wave impulse and 3 wave retracement Elliott parameters and turn at Fibonacci ratio points.

7. Arboration. Not just the branching angles larger to smaller as one travels out from the plants base, but how stems and leaves both rotate around the base and spread to optimize the sunlight they receive. All are Fibonacci number based ratios.

8. Fractals - think broccoli - each small spear is a mirror image of the large bunch. Think tree - branch is image of whole. Think coastline - edge of tide pool looks same as if looking down from airplane.

9. Evidence clear down to subatomic particle behavior. Particles bouncing off walls of container look like coiled ferns which if you do the math are related to Fibonacci.

10. The limbic system in the brain relates to emotional feelings and guides behavior required for self-preservation and the preservation of the species. If early man did not get along with the clan he was thrown out of the cave to freeze to death or was stoned to death. Likewise, if he did not run with and follow his clan he was likely to get eaten by wild animals or get left behind and starve to death. So, now mankind invests the same way. Buying more and more as prices rise (evidence is the recent real estate top).

Socionomics says following the herd is not the way to invest. Like the lemmings (little rat-like rodents) all following each other to death over the cliff and into the sea to drown in a mass suicide. It is not the way for you to survive either. When the big cycle goes into reverse there is no stopping the pendulum and no amount of government money thrown at the problem will get it to swing the other way before it is ready too. The excess waste, credit, government, rules and regulation - all the darned excesses - will come back down to reality.

"Those who can not remember the past are condemned to repeat it." George Santayana

We have only known inflation in our lives. We are in denial that deflation and depression can happen. Stocks are sliding down a slope of hope. People are worried and their mood is getting ugly. That is what socionomics is all about.

Socionomics describes the waxing (positive-optimistic) and waning (negative-pessimistic) of people’s mood and how they react en mass.

No matter how many trillions of dollars the government throws at the problem, they would be better off reducing taxes and letting business create the new jobs.  The free market system is best.

Better to be a contrarian investor now than to lose it all in the coming GREATER DEPRESSION and then be afraid to invest at the bottom in 2016 to 2018.

There are new ways to invest to short stocks that for each one dollar invested you could get back many more. With the new short stocks ETFs (exchange traded funds), as well as actual short the market mutual funds like BEARX or the URSA fund you never get a margin call or run out of time on any of these since they trade like stocks.  But, you have to get in on these early and here in 2011 we are halfway into the greater secular bear market in a bear market rally. Many of the short-the-market ETFs are property of Proshares or Ishares.  Google short ETF.  Contact your broker.  Cash Is King in deflation!

Prechter sees equities, antiques, many commodities and real estate loosing 90%, junk bonds going to zero and a strong dollar.  He even says gold may drop in half.  In addition, Prechter says the unemployment rate will be over 30%.  When?  2016-2018 

Copyright 2010 – by Delwyn Lounsbury - THE DEFLATION GURU
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