Sunday, January 17, 2010

Socially, What Happens During a Bear Market?

Socially, What Happens During a Bear Market?

By Susan C. Walker
Fri, 15 Jan 2010 14:15:00 ET
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It's easy to see what a bear market looks like on a price chart -- a downward-trending line. But what does a grand-scale bear market -- the kind that Elliott Wave International predicts within this decade -- look like in everyday life? Reporters have asked Bob Prechter this question in many ways. And since his latest Elliott Wave Theorist explains when to expect the big downturn, this is a good time and place to gather together his answers.
Prechter's views go well beyond what will happen in the financial markets. They encompass his socionomic analysis of how a negative social mood will affect our daily lives, in terms of politics, personal relationships and social unrest. Here's a selection of what to expect, and remember that being prepared for what's to come will make it easier to deal with the social aspects of a severe bear market.
Excerpt taken from Prechter's Perspective, originally published 2002, re-published 2004
Limits and Conservation
Question: What are the essential ways in which bear market moods differ from those of bull markets?

Bob Prechter: In bull markets, people focus on progress and production; in bear markets, they focus on limits and conservation. Bull markets result in increased harmony in every aspect of society, including the moral, religious, racial, national, regional, social, financial, political and otherwise. Bear markets bring polarization. With that realization, you can predict increasing cooperation in all those areas in bull markets, and increasing conflict in bear markets.

Q: What is it that people are unprepared for now?

Bob Prechter: The bear market will bring back nationalism, racial exclusion and perhaps even religious conflict. Thinking technically about events, that is, observing what they reveal about social psychology, prepares you for those changes, whereas trying to predict the future from the events themselves leads you to the opposite, and wrong, conclusion. It cannot be stressed enough, because life-or-death decisions can depend upon your assessment. Notice what marks the major bear market lows of just the last 200 years — the Revolutionary War, the Civil War and World War II. Those were buying opportunities.

The End of Two-Party Politics
Q: Back in 1989, when two-party politics appeared assured forever, you predicted a third party and a shake-up of the traditional parties.

Bob Prechter: Yes, because what normally happens in the type of period that is approaching is a polarization of opinion in all kinds of areas. It’s not just that the left takes over or the right takes over. During bull markets such as in the 1950s and the 1980s, most people are centrists. In bear markets, you see extreme polarization. You get leftists and rightists on one axis, and authoritarians and champions of individual liberty on the other, battling it out for power.

Q: Bear market politics seem more interesting.

Bob Prechter: Oh, yeah! That’s when people tend to vote for more radical candidates. When the next general decline in world stock markets takes place, the popularity of all incumbents will suffer. If the markets fall as far as cycles suggest in the next few years, most incumbents will not win re-election. But don’t confuse interesting politics with good fun. It’s usually scary.

Are You Prepared for a Big Downturn and Runaway Deflation? In his January Elliott Wave Theorist, Bob Prechter outlines what will happen when the financial markets turn down and how to protect yourself from dire circumstances. Get his latest Theorist to read his forecast in detail. More information here.

Women on the Rise
Q: Women appear to be rising in dominance, as they did in the 1970s and 1940s. Although now it’s not Rosie the Riveter but Sally the Senator.

Bob Prechter: That’s because we’re approaching a bear market. In every field, women gain dominance in bear market periods, and depending upon how the top is formed, the trend can begin a bit before or a bit after the price peak registered on the New York Stock Exchange.

Q: It seems to be something that appears late in the cycle. When Rome went into decline, for instance, there was a similar phenomenon. Some historians have even blamed Rome’s fall on the rise of women. These days some use it to say that Western civilization’s main problem is that it’s henpecked.

Bob Prechter: Well, I’m not saying that such things are causes. My position is different. The position you describe is one that implies it can be fixed. “If men would just change, or women would just change, then civilization would be saved.” But changes in sexual roles are not the cause of things. They are a result of, or at least part and parcel of, the social dynamic reflected by Elliott waves.

Q: Men can’t get together and say ‘Hey, let’s stop being henpecked’?

Bob Prechter: No. At some level, they want to be henpecked. Men’s role in this is just as important. In fact, one could argue that women rise in relative power because men abdicate it; they become docile and weak, so women fill the void. If men aren’t getting the job done, which they do really well in bull markets, women take up the slack by assuming responsibility in areas that men have abandoned. So calling for change is just not going to work.

Q: But is the timing right? It seems like this trend started long before this top. Didn’t it start back in the ’60s when Donna Reed, June Cleaver and Harriet Nelson went off the air?

Bob Prechter: Precisely! That’s when the Grand Supercycle peaked out as measured in constant dollars and when it was almost entirely a man’s world. You have to figure what the mix is in the overall picture. On a major trend basis, it’s becoming increasingly a women’s world. We had the feminist movement in the 1970s, more women heading into the work force and so on. I mean, maybe at the bottom we’ll see another Joan of Arc or something. Can you imagine how submissive the Frenchmen of the time had to have been to allow England to take them over, then sit by and do nothing, or cooperate like weasels, until a female came along and challenged the English? And the men and women just weren’t ready to be rescued yet. They both burned Joan for her trouble. Later on, men got socially recharged and took up the fight.

Smaller Social Units
Q: Let’s look deeper at the idea of inclusionism and exclusionism in bull and bear markets.

Bob Prechter: At the peak, there is a perceived brotherhood of men, nations, and indeed all living things, which is why there has been an environmental movement, in which trees are embraced as brothers. In bear markets, the trend changes, and the ultimate result is a psychology of “us vs. them.”

Q: So we will see a marked increase in factionalism during bear markets?

Bob Prechter: Yes, and the larger the bear market, the smaller the factional units. During the reduction process in the size of the social unit of allegiance, one’s “in group” becomes smaller and smaller, moving from the universe to the world to the nation to the ethnic, religious, regional or sexual group to the city or feudal estate to the family to the individual. The trend halts at some point along that line that depends on the extent of the economic and psychological decline.

Q: What’s the stopping point for a large-degree decline?

Bob Prechter: In the Dark Ages, the feudal estate was the largest unit of allegiance in Europe. In times of starvation, such as in parts of Africa in recent times, even the family unit can disintegrate as babies are left to die while individuals fend for themselves.

Q: Inclusionism is a sense of community and goodwill that gathers with a bull market, while exclusionism is the rise of factions and intolerance.

Bob Prechter: Right, at a peak, it’s all “we;” everyone is a potential friend. At a bottom, it’s all “they;” everyone is a potential enemy. When times are bad, intolerance for differences grows, and people build walls and fences to shut out those perceived to be different. When times are good, tolerance is greater and boundaries weaker.

Q: Where does this unrest and the rising exclusionism eventually take us?

Bob Prechter: Trends become radicalized. Environmentalism, for instance, will follow an exclusionary path, adopt an “us vs. them” mentality, and become more hell-bent on destroying humans than on hugging trees. At the same time, a severe reaction to the movement will set in. The same will be true regarding every social question: immigration, welfare, you name it. Exclusion will gain the upper hand. In countless ways, persecution will wax. This is the likely direction of trend for the next dozen years and on a larger scale for as much as a century.

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