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The Socionomic Insight 

The Wave Principle
Of Human Social Behavior 
And The New Science Of Socionomics

by Robert R. Prechter,Jr.,1999
[Elliott Wave International]

What Is Socionomics - The Socionomic Insight

"Elliott was the first person to relate stock cycles to the unthinking collective action of herds of investors. This revolutionary
idea is still unaccepted today by virtually all of our academic, corporate and government leaders. Every day our print and TV 
media attribute changes in stock prices to a real or imagined external event in our society.  These conclusions are wrong, completely wrong. Elliott and experts, who followed him, have proven conclusively that mass changes in social mood are the
cause of stock market cycles. External news events, even very major ones, have only a temporary effect on the stock market, sometime lasting only a few hours or a day." [Robert Gordon] 

 

Socionomics is the science of history and social prediction. 

It is field of study encompassing the origins and effects of an endgenous human social dynamic called the Wave Principle, 
a specific sequence of progress and regress that regulates the complex system of collective mood and social trends on this 
basis: that the character of social, political, cultural, financial and economic trends are the product of collective human
psychology, which is based upon an unconscious herding impulse deriving from pre-rational portions of the brain."The Wave Principle reveals that the human social experience follows a form that derives from the tension between the opposing dualities 
of progress and regress. Its ruling ratio is phi, the same number that governs nature's arbora and spirals, making it fundamental
to nature's arrangements".(S.83 The Wave Principle of Human Social Behavior, R.Prechter 1999).

Understanding socionomics requires comprehending the contrast between two postulations:

(1) The standard presumption: Social mood is buffeted by economic, political and cultural trends and events.
News of such events affects the social mood, which in turn affects people’s penchant for investing.

(2) The socionomic hypothesis: Social mood is a natural product of human interaction and is patterned 
according to the Wave Principle. Its trends and extent determine the character of social action, including economic, 
political and cultural trends and events.

The contrast between these two positions comes down to this: The standard presumption is that in the social setting, 
events govern mood; the socionomic hypothesis recognizes that mood governs events. In both cases, the stock market
is seen as an efficient mechanism. In the first instance, it presumably revalues stocks continually and rationally in reaction
to events; in the second, it revalues stocks continually and impulsively as the independent social mood changes. We will
now investigate five presumed “outside forces” to see which of these views and their relationship to the stock market can
be supported by the standard presumption and which ones are supported by the socionomic hypothesis..

 

While I present these traits here in list form, I am certain that the correct depiction of these attributes and the things they 
cover is a tree. For instance, “clarity vs. fuzziness” has under it practical thinking vs. magical thinking styles as well as a 
preference for angular vs. rounded automobile styles. Similarly, “constructiveness vs. destructiveness” has under it stock 
market and business trends as well as trends in art and music. However, I have not fully developed this idea, which will 
require its own entire book, anyway. 

The tendencies listed above have concrete results. Here are a few examples:   

(1)   Concord/Discord: A rising mood leads to  a substantial consensus in politics, culture and social vision; a falling mood
leads to a divided, radical climate. After the social mood has risen for a number of years, the society tends to be peaceful; 
after it has fallen for a number of years, it tends to become involved in wars.  

(2)   Inclusion/Exclusion: A rising mood leads to feelings of social brotherhood and acceptance among races, religions and 
political territories, as well a toward animals, plants, and proposed aliens. A falling mood leads to apartheid, religious 
animosity, cavalier cruelty, secession, independence movements and images of aliens as monsters.  

(3)   Forbearance/Anger: A rising mood leads to social expressions of acquiescence, apology, tolerance. A falling mood leads 
to social expressions of resistance, recrimination and intolerance.

(4)   Confidence/Fear: A rising mood leads to speculation in the stock market and in business. A falling mood causes risk 
aversion in the stock market and business.  

(5)   Embrace of effort/Avoidance of effort: 
In a rising mood trend, people are disposed to expending effort, both mental, which elevates the use of reason, and physical, 
which elevates the ideal of fitness. In a falling mood trend, they are disposed to avoiding effort, which leads to magical thinking 
and physical laziness.

(6)   Practical thinking/Magical thinking: Practical thinking manifests itself in philosophic defenses of reason, self-providence, individualism, peacemaking and a reverence for science. Magical thinking manifests itself in philosophic attacks on reason, self-abnegation, collectivism, witch hunts, war-making and a reverence for religion.  

(7)   Constructiveness/Destructiveness: 
The impulse to build shows up in the construction of record-breaking skyscraper buildings at social-mood peaks. At throughs, 
few buildings are built, and many of those already in place may be burned or bombed out of existence.  

(8)   Desiring power over nature/Desiring power over people: Desiring power over nature leads to a naturalistic mindset, political freedom and peaceful technological advances. Desiring power over people leads to a socialistic mindset, political repression
and technological advances in waring.

 

 

The Economy

The standard presumption is that the state of the economy is a key determinant of the stock market’s trends. All day long on financial television and year after year in financial print media, investors debate the state of the economy for clues to the future course of the stock market. If this presumed causal relationship actually existed, then there would be some evidence that the economy leads the stock market. On the contrary, for decades, the Commerce Department of the federal government has
identified the stock market as a leading indicator of the economy, which is indeed the case.

If the standard presumption were true, then changes in the economy would coincide with or precede trend changes in aggregate stock prices. However, a study of Figure 1 will show that changes in the economy coincide with or follow trend changes in 
aggregate stock prices. Except for the timing of the recession of 1946 (which supports neither case), all economic contractions came upon or after a downturn in aggregate stock prices, and all economic recoveries came upon or after an upturn in aggregate stock prices. In not one case did a contraction or recovery precede a change in aggregate stock prices, which would repeatedly
be the case if investors in fact reacted to economic trends and events. This chronology persists back into the nineteenth century
as far as the data goes.

The socionomic hypothesis explains the data. Changes in the stock market immediately reflect the changes in endogenous 
social mood. As social mood becomes increasingly positive, productive activity increases; as social mood becomes increasingly negative, productive activity decreases. These results show up in lagging economic statistics as expansions and recessions. 
The standard presumption has no explanation for the relative timing of these two phenomena.

 

 

Source: Elliottwave International 

Elections

The standard presumption is that election results are a key determinant of the stock market’s trends.
As an election approaches, commentators debate the effect that its outcome will have on stock prices.
Investors argue over which candidate would likely influence the market to go up or down. “If so-and-so
gets elected, it will be good/bad for the market,” we often hear. If this causal relationship were valid, then
there would be evidence that a change in power from one party’s leader to another affects the stock market.
On the contrary, there is no study that shows such a connection.

A socionomist, on the other hand, can show the opposite causality at work. Examine Figure 2 and observe
that strong and persistent trends in the stock market determine whether an incumbent president will be
re-elected in a landslide or defeated in one. In all cases where an incumbent remained in office in a
landslide, the stock market’s trend was up. In all cases where an incumbent was rejected by a landslide,
the stock market’s trend was down.2 In not one case did an incumbent win re-election despite a deeply 
falling stock market or lose in a landslide despite a strongly rising stock market.3

The socionomic conclusion is this: When social mood waxes positive, as reflected by persistently rising
stock prices, voters desire to retain the leader who symbolizes their upbeat feelings and who they
presume helped cause the conditions attending them.

 

Source: Elliottwave International 

 

When the social mood becomes more negative, as reflected by persistently falling stock prices, voters
decide to throw out the incumbent who symbolizes their downbeat feelings and who they presume helped
cause the conditions attending them.

The political policies of the incumbent and his challenger are irrelevant to this dynamic. The key is a desire
for change per se, not any particular type of change. The standard presumption has no explanation for
reconciling the relationship between these phenomena.

 

Peace & War

“Surely,” says the supporter of the conventional view, “if war broke out, that would affect social mood and the stock market.” Such a comment would be, and is, an assumption. It is unsupported by argument or history. As to argument, many people assume that war is a dangerous enterprise that would cause concerned investors to sell. Many historians, on the other hand, argue that war is good for the economy, which by conventional logic would make it good for the stock market. As this reasoning is contradictory, so is the historical record. The Revolutionary War took place entirely during a falling stock market in England. The Civil War took place entirely during a rising stock market in the U.S. World War I saw the stock market rise in the first half and fall in the second half. World War II saw the opposite, as the stock market fell in the first half and rose in the second. During the Vietnam War, it went up, down, up, down and up, finishing about unchanged. In sum, there is no data to support the conventional view, and all the data taken together contradict it.

Socionomics, in contrast, points out a consistent correlation with a consistent rationale. Because social mood governs the character of social activity, a persistently rising stock market, reflecting feelings of increasing goodwill and social harmony, should consistently produce peace, and a persistently falling stock market, reflecting feelings of increasing ill will and social conflict, should consistently produce war. Figure 3 bears out this expectation. Long rises in the stock market unerringly result in climates of peace, while sharp declines result in major wars.

 

Source: Elliottwave International 

The Revolutionary War took place during a major bear market from 1720 to 1784. The Civil War broke out shortly
after the end of the bear market from 1835 to 1959. World War II started during the bear market from 1929 to 1949. (inflation-adjusted terms) In every case, a rising social mood eventually brings an end to the war and a period of 
peace and cooperation.4

 

Other Political Results

The standard presumption is that political developments have a significant impact on stock market trends. The following excerpts (edited for this website) from The Wave Principle of Human Social Behavior and the New Science 
of Socionomics, published in 1999, addresses this presumption: “Shall we apply this concept to today’s environment as we enter 1999? The character of today’s social events is as bright as any time in history. Look around and witness how the upswing in common temper has produced events during this decade that are so positive as to have been previously unimaginable. Officials have pronounced the forty-year-long Cold War officially over; the U.S.S.R. has freed Eastern Europe, creating what The Wall Street Journal called “a period of euphoria unequaled in the postwar era”; China appears to be on the long-term road to adopting capitalism and freedom; U.S. political leaders have promised 
a perpetually balanced Federal budget by constitutional amendment; the U.S. won its first war in 46 years; South Africa ended apartheid three and a half centuries after the Dutch arrival in South Africa and 45 years after its adoption as official government policy; and countless political and religious leaders have reached conciliation after decades, centuries and in some cases millennia of animosity.”

 

 

 

Source: Elliottwave International 

 

 

“The response of today’s conventional analysts to these conditions is as optimistic as it was in the late 1920s. For example, 
State Department Policy Planner Francis Fukuyama, in his widely praised New York Times bestselling book, declares “the
end of history as such” because political risks have been obliterated by the global triumph of Western liberal democracy. World officials agree, expressing joy that a new golden age of world peace and prosperity has begun. The public agrees; as a result of 
all this truly wonderful news, the Consumer Confidence statistic in 1998 approached its highest levels of the past 25 years. The vast majority of citizens, public and private, including all conventional futurists, economists and political analysts, are bullish on the stock market, the economy and the future as far as the imagination can project. However, you, as a reader of this paper, have the basis for a more reliable perspective.”

“Understanding that “bullish” means that things will improve and “bearish” means that things will deteriorate, are the events described above bullish or bearish? Events of recent years, as chronicled above, are the opposite of the social spectacle of the 1930s and 1940s. The figure below details the colossal difference in political tone between the results of the last significant bear market and the results of the current bull market. Are the latest events, deeply welcome as they are otherwise, consistent with events that accompany a social-mood bottom or top? Given your answer, should we anticipate an acceleration or long continuance of the trend we have enjoyed or begin anticipating a reversal?”

“If your answer is the same as mine, then you disagree with (to the nearest percent) 100% of economists and public policy makers, who conclude that these events have created “favorable fundamentals”  that are bullish for the indefinite future. 
Should a socionomist change his opinion because every conventional economist and futurist in the country disagrees with it? 
The answer is no, whether our statement of probability (not certainty) turns out right in this particular instance or not.”

Our answer turned out to be dead right. Looking at the above chart in Figure 4, one can perceive that the character and
magnitude of events followed stock market movements of a similar nature. This is consistent with the socionomic hypothesis.

“Events look so good at a major top and so bad at a major bottom that few can envision any trend but a continuation, if not acceleration, of the one that brought them there. The point of this section is to communicate that that very fact implies an increased probability of change.”

Keep in mind that event extremes are relative. Just because times are good does not mean that it must be a top. Similarly, just because times are bad does not mean that it must be a bottom. Both the Renaissance and the Dark Ages lasted a long time. 
The key, as always, is a proper perspective provided by the structure of social mood.”



Demographics

Currently fashionable is the idea that demographics determine stock market trends. It was discovered, when sliding birth data around on top of a chart of the stock market, that there is a four-decade correlation when birth data are moved forward 46-49 years. The explanation for this correlation, roughly stated, is that people spend and invest more when in their 40s, so the stock market will go up and down with the percentage of people in their 40s. It seems so sensible to the conventional mindset that people across the country have embraced this thesis.

The first problem with this case is that when data may be moved around at will, apparent correlations appear often. One can find three different multi-decade periods of correlation between immigration data and the stock market when one is allowed to slide the two series around until they fit. The second problem with this case is that the available data prior to the mid-1950s diverges so significantly from this postulation that it disproves any causality. At least four studies5, 6, 7, 8 have debunked the assertion.


What is the socionomic position on demographic causality? Think about it for a minute. We have already seen that social mood determines the trends of the economy, politics, and the conditions for peace and war. Might social mood also determine demographics?

Figure 5 shows that demographic data line up almost perfectly with the stock market, particularly when it is expressed in terms
of the advance-decline line, which reflects how many stocks are going up or down. This is a broad measure that better reflects
the full population’s participation in national demographics (as opposed to data on the economy, which can be propelled by a narrow list of industry leaders). The data shown in bars is annual birth data, lagged by one year to reflect (within three months)
the number of annual conceptions. The major stock market lows of 1932 and 1974 coincide exactly with the major nadirs in procreational activity. The peaks in procreational activity correspond to peaks in the a-d line.

Source: Elliottwave International  

There is not enough data to be certain of a causal relationship, but it is nearly twice as long a correlation as the one that
convinces so many people of the “demographics determine stock prices” case. More important, and in contrast to the
aforementioned case, this correlation holds throughout all the available data, which dates from 1908 for conceptions and 
1926 for the a-d line; no data contradict it. The socionomic hypothesis can account for this correlation. As people in general
feel more energetic, confident and happy, they have more children. Conversely, as people in general feel more sluggish, fearful 
and unhappy, they have fewer children. Thus, social mood determines aggregate procreational activity. Once again, the hypothesis
is simple and elegant and explains the data.

Corporate Scandal

Did the Enron scandal discourage investors? No, discouraged investors precipitated the Enron scandal. Many readers 
undoubtedly will balk at accepting the principle behind the above formulation without their own tedious process of induction 
via repeated examples. 

To aid in that process, we must disprove the questioner’s and media’s false premise and demonstrate the validity of the 
socionomic stance.

First, let us define scandal not as misdeeds themselves, which can occur in secret. Scandal is the recognition
of misdeeds, the outcry of recrimination and the public display of interest and outrage.

The premise is revealed as utterly false when we observe, despite virtually everyone’s feelings to the contrary, that (1) investors
in general knew nothing about Enron’s malpractices prior or anytime during the stock market’s decline, and (2) throughout the 
drama of the Enron scandal, the market advanced, and related psychological indicators improved. It is abundantly clear that as
the Enron scandal developed, investor and consumer psychology improved, and stock prices rose. Therefore, it is utterly false
that the Enron scandal "discouraged investors."

Anyone who posits event causality in this instance is boxed into a corner.

Given the facts before our eyes, he has no choice but to conclude that the Enron scandal was bullish for stock prices and that 
it caused investor’s mood to improve! One can then proceed directly to what would seem to be an obvious statement: that such 
a conclusion is ridiculous. Incredibly, though, one cannot say it.

 Why? 

Because conventional analysts actually proceed directly to such absurd conclusions repeatedly as a matter of course. 
A few years ago, there was a news report of an analyst, who watched the stock market rally despite revelations of President 
Clinton’s misbehavior, and came to the conclusion that presidential sex scandals are bullish! 

Economists have reviewed the temporal proximity of war and economic recovery, and they assert, almost to a man, that war is
good for the economy. If economists can argue that the most destructive activity of man is a positive force for economic well 
being, then conventional thinkers will have no trouble devising an argument as to why financial scandals are bullish. 
Such rationalization is easy.

The Enron scandal was not causal to any aspect of social mood whatsoever; it was a result of a change in social mood. The 
average person’s resistance to the socionomic insight is so formidable that it compares to having one’s view of existence 
challenged. 

The reason for this resistance is the easy naturalness of the idea of event causality: It works in physics, so people assume that
it must operate in sociology. This deeply rooted assumption is stronger than piles of evidence to the contrary.

Source: Elliottwave International

The Degree of Mood Change Determines the Degree of the Results

The socionomic hypothesis suggests that the extremity of social behavior should be directly proportional to the extremity
of the social mood swing. This is indeed the case. The longer, further and more broadly the stock market rises, reflecting
a waxing positive mood, the more consistently the economy expands, the more citizens vote to “stay the course,” the more children people produce and the more broadly peaceful is the resulting social climate. The longer, further and more broadly 
the stock market falls, reflecting a greater swing toward negative mood, the more deeply the economy contracts, the more citizens vote to “throw the bums out,” the fewer children people produce and the greater is the resulting social tension and conflict.

Small stock market corrections beget recessions, mild defeats at the polls and minor wars. For example, the correction of 1959-1962 led to a mild recession in 1960 and the Cuban Missile Crisis of 1962, a near minor war. (Had 1962 been an 
election year, the incumbent would have lost.) The correction of 1987-1990 led to the moderate Gulf War in 1990 and a brief recession in 1991. In 1992, the incumbent lost the election by a small margin. The larger correction of 1966-1974, in contrast, led to two major recessions (in 1970 and 1974), the ousting of a president by resignation and the comparatively severe 
Vietnam War.

Larger stock market corrections, such as those highlighted in Figure 3, beget depressions, political upheaval and all-out war. Corrections of Millennium degree, such as the Dark Ages, destroy economies, political systems and entire nations. 
Conversely, small uptrends produce moderate benefits, while uptrends of the highest degree produce the greatest social achievements of mankind such as the Renaissance, the Industrial Revolution and the Information Age.

Summary
As social mood becomes more positive, people buy more stocks, behave more productively, vote for more incumbents, have more children, blow off fewer bombs and act peacefully toward their neighbors. Conversely, as social mood becomes more negative, people sell more stocks, behave less productively, vote for more challengers, have fewer children, blow off more 
bombs and act belligerently toward their neighbors. All this correlation is consistent with the idea that all these activities have
a common engine, which is social mood. Of course, social mood dynamics produce countless other manifestations, such as trends in art, music, entertainment, mores and fashion, to name but a few.

Because social mood change, as revealed by stock market’s form, is patterned according to the Wave Principle, we can propose a larger socionomic hypothesis, that the Wave Principle ultimately shapes the dynamics underlying the character
of all human social activity.  

 

 

 

 

Corporate Earnings 

As I write this paragraph, today’s newspaper sports this headline in the business section: “Determining What Will Move Market 
Not Difficult – But Forecasting Its Direction Is Harder.” The “easy” part is no surprise, since virtually everyone in finance agrees: “Earnings are the primary sources of stock price movement, which accounts for Wall Street’s preoccupation with next month’s earnings reports..

Is the indicator valid? Are stocks driven by corporate earnings? In June 1991, The Wall Street Journal reported on a study by Goldman Sachs’s Barrie Wigmore, who found that “only 35% of stock price growth (in the 1980s) can be attributed to earnings
and interest rates.”  

Wigmore concludes that all the rest is due simply to changing social attitudes, toward holding stocks. (Actually, all of it is due to changing social attitudes, and earnings are their product.) Says the Journal, “This may have just blown a hole through this most cherished of Wall Street convictions.”
Loewenstein,R. (1991, June 6). „Goldman study of stocks’ rise in ´80s poses a big riddle.” The Wall Street Journal, p.C1        

This study shows that even in retrospect, the “fundamentals” that most analysts are relying upon have little relationship to stock market movement.

What about simply the trend of earnings vs. the stock market?

Well, since 1932, corporate profits have been down in 19 years. The Dow rose in 14 of those years. In 1973-74, the Dow fell 46% while earnings rose 47%. 12-month earnings peaked at the bear market low. Earnings do not drive stocks. As Figure 19-2

Illustrates and as Arthur Merrill showed years ago, earnings lag stock trends. As shown in Chapter 16, the economy lags stock trends. It is therefore impossible for earnings or the economy to drive stocks. Forecasting the stock market is indeed impossible when the supposedly easy part is a wrong premise.
(The Wave Principle of Human Social Behavior, Problems with Conventional Approaches, p.376-377, 1999 by Robert R. Prechter)        

 

Direction, Volatility and Duration Do Not Determine 
The Source Of Sociological Motive
(The Wave Principle Of Human Social Behavior and The New Science Of Socionomics,1999, Robert R.Prechter,p.395) 

Robert Schiller 1) polled individual and institutional investors about why they sold stocks on October 19,1987. Most of them admitted candidly that "they sold because others were selling" 2), i.e. they were herding. It is welcome to have research telling us that the crash of 1987 was a "psychological event". However, no one ever thinks to poll investors about why they had bought stocks relentlessly throughout the preceding year. If any pollster did ask, the truth would be exactly the same, but he would find little honesty about the fact because in rising markets , people have plenty of time to let their neocortexes formulate all kinds of rationalisations for herding action. Panic is a faster-acting emotion than hope , and the neocortex is often stumped in coming up with an explanation for it. One of my favorite quotes to this regard, undoubtedly rushed out near press time , is one from The Wall Street Journal: "The U.S. Dollar continued to decline yesterday despite the economic news that could have been bullish for the currency if traders mood weren't so bearish. 

Market commentators often blame a declining trend on herding, but they virtually never ascribe a rising trend to herding. This convention is displayed so often that all one need do is read the papers for a few days to find an example. On June 2,1998, the Dow Jones News Service quoted a brokerage firm's director of investment strategy after a few weeks of price decline in a broad list of technology stocks as follows:
"The herd mentality is taking over." That is to say, herd mentality had nothing to do with the multi-year buying binge on alltime-record volume producing alltime-record valuation for technology stocks, that , we are to presume, was all fueled by the rational decision-making of independently minded individuals. On June 15,1998, the morning after the intraday low of a correction in that index , USA Today parroting economists, repeated, "the drop is based more on psychology than fundamentals." 3) A mere six trading days after that assesment was published , the NDX reached a new alltime-high. Once again,no experts claimed that that rise was due to psychology. As always, they found adequate "fundamentals" to explain the leap. 

That is to say, psychology never interfaces with these rational models of cause and effect when prices rise, it only happens when they fall. 
As you might guess, quick willingness to blame psychology only for declines is related to peoples tendency , to equate downtrends with unpredictability and uptrends with predictability. Of course, that the forecast generated by the above-referenced models were any good on the upside is a myth; people simply felt comfortable and did not need to explain away all the errors. The market decline caused discomfort , evidence being that that the above assesment was written on the exact day of the low following a three-month- 20% decline in the S&P Composite Index and a six-month 30% decline in the broader stock averages. (The limbic system is not only in charge of stock price trends;
it is in charge of the timing of psychologically forced rationalization about them.) 

The question is whether it is valid to assert, as it continually is, that psychology plays a part only in the crowd's stock-selling behavior and not its stock-purchasing behavior. The problem with the stance that advances are rational and declines are emotional is that market direction is simply a function of how the ratio of two assets is expressed. For example, one can plot stocks in terms of dollars or dollars in terms of stocks, or dollars in terms of yen or yen in terms of dollar. Stock prices express the value of stocks in terms of dollars (dollars per share), 
but they could just as well be inverted to show the value of dollars in terms of stocks (shares per dollar). 

The direction of some markets does determine, for most people, which impulse emotion is involved. This is particularly true for stock prices, 
in which most people are betting to the upside. That is why up trends look different from downtrends on a stock market graph. Hope is the fuel for advances in stocks and fear the feel for declines. Hope, fear and complacency express themselves differently. Hope trends to build slowly, while fear often crystallizes swiftly. Nevertheless, they are both still emotions and so derive from the same motivational engine. 

1)Robert J.Shiller,2000, Irrationaler Überschwang, Warum eine lange Baisse an der Börse unvermeidlich ist. Campus Verlag Frankfurt/New York.
2)Ladermann J. and Pennar, K. (1988, October 17). "Did The Crash Make A Dent?", Business Week, p.88
3)Rynecki D. (1998 October 9). "High stakes guessing game: markets defy easy answers." USA Today.

 

NOTES

1 The converse is true as well, as long as we define “downturn in aggregate stock prices” as the onset of an Elliott wave correction (see letter labels in Figure 1). Thereafter, the resulting recession may occur in wave A, C or both.

2 To this summary we may add Richard Nixon, who, after being re-elected on a landslide as the DJIA rose to an all-time high, was forced
to resign during the 1973-1974 bear market. 

3 Narrowly contested elections sometimes hinge on near-term market trends and/or the lagging performance of the economy, as in the cases of Truman and Bush.

4 This is where historians get the bizarre notion that war is good for the economy. Actually, each war is triggered by an extreme low in mood, typically in the climate of economic depression. The social mood then reverses naturally and brings about both increased productivity and peace.

5 Bank Credit Analyst. (1997, January and 1999, March), Toronto.

6 Holt, Derek. Royal Bank of Canada, as quoted on Bloomberg, June 20, 1997.

7 Poterba, James M. (1998, October). “Population Age Structure and Asset Returns: An Empirical Investigation.” Massachusetts Institute of Technology, Cambridge.

 

 

Components of Mood  

 R.N. Elliott said only that „human emotions.... are rhythmical” and that their waves govern “all human activities, whether it is business, politics, or the persuit of pleasure.” Human emotions is not a precise term. What does it really mean to say that the social mood trend is trending “up” or “down” at a particular degree? Specifically, what characteristics and emotions do waves reflect? There appears to be  a social polarity that underlies all social interaction. We can refer to these opposites as ”positive” and “negative,” not simply to represent polarity but also to imply a value judgement with respect to the net social experience (though not to every aspect of it). 

A good deal of empirical observation and historical investigation prompts the following list: A waxing positive social mood appears to correlate with a collective increase in concord, inclusion, happiness, forbearance, confidence, supportiveness, adventurousness, ebullience, daring, friskness, optimism, scepticism, benevolence, sharpness of focus, practical thinking,  a search for joy, an interest in love over sex, constructiveness, a desire to provide for oneself, a desire for power over nature, feelings of homogeneity with others, clarity of thinking and emotion, embrace of effort, and feelings of alignment with others. A waxing negative social mood appears to correlate with a collective increase in discord, defensiveness, somberness, pessimism, credulity, malevolence, dullness of focus, magical thinking,  a search for pleasure, an  interest in sex over love,  destructiveness, a desire for self-deprivation, a desire for power over people, feelings of heterogeneity with others, fuzziness of thinking and emotion, avoidance of effort, and feelings of opposition toward others. 

 

The Value of Forecasting with the Wave Principle

With the caveat of immense specific variability within the known aspects of the Wave Principle, it is still the case that the practical value of all we know about it is immense. The first fantastic value that the Wave Principle provides is an amazing perspective.  The second value is an occasionally remarkable accuracy, as you can see in Chapter 6. the third great value is that it provides a basis for assessing the past and analyzing the present in a consistent context, to which all the predictive literature on the subject attests. Finally, the Wave Principle indicates in advance the relative magnitude of the next period of social progress or regress. With all these gifts, we have a basis for informed, truly rational decision-making with regard to anticipating the tenor of future events. Its very nature forces us to look at the big picture, elevating our perceptions above the cacophony of daily news and providing the opportunity to make sense of great social trend changes and the dramatic events that accompany them. As a result, the Wave Principle provides a basis for achieving a great sense of calm about the future, which no longer appears as a black cloud of unknowable chaos (sometimes just a grey cloud of partly knowable chaos).

The general results of social mood , i.e., economic trends, political trends, peace and war, etc., are fairly easy to predict, as they follow what has already occurred in social mood. Predicting social mood trends themselves, and their immediate reflectors such as stock index trends, fashion and entertainment trends, etc, is more difficult, but the Wave Principle at least provides a basis for doing so. With knowledge of how the pattern unfold, to the extent of our ability, effort and emotional detachment, we can enjoy success even at that daunting task.

Because the Wave Principle describes patterns of collective behavior, the accuracy of any resulting forecast depends upon (1) the reliability of the investing’s crowd behavioral patterns and (2) the ability of an analyst to identify the relevant ones properly. In fact, the patterns, while varied, are more than reliable, within the bounds of their definitions , they are inviolate, a characteristic that makes wave analysis incalculable superior to other methods. An analyst’s ability to identify the relevant patterns, interpret them properly and anticipate the ones to follow is another matter. That task is exceedingly difficult. Nevertheless, even on that score, the Wave Principle provides some advantages that most forecasting methods lack. For instance, it provides a method of conceiving and then ranking alternative scenarios. Perhaps most important, the Wave Principle provides a built-in mechanism for changing one’s mind. The ultimate determinant of the objective analyst’s opinion is the market itself, not a presumption about outside causes. This approach provides an objective basis for staying in tune with the developing trends and for changing one’s opinion when necessary.

Social forecasting is an ability that has deftly eluded man throughout his existence and indeed has been considered as impossible as a perpetual-motion machine. The Wave Principle changes all that. Because of it, we finally have a way to forecast much about our social future, not with magic or revelation or astrology or sorcery or voodoo or mindless linear extrapolation, but with science.

Convey and Highfield assert, quite generously given the state of conventional economics, that “economics straddles the divide between science and the humanities.” With the Wave Principle, economics is now science, and with socionomics, even the humanities are tools of science. 
(The Wave Principle Of Human Social Behavior And The New Science of Socionomics, Robert R. Prechter, 1999 )

 

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The Wave Principle Of Human Social Behavior 
And The New Science Of Socionomics

by Robert R. Prechter,Jr.,1999
[Elliott Wave International]

Socionomics: 
The Science of History and Social Prediction

The Science of History and Social Prediction spells out a historical correlation between patterned shifts in social mood and their most sensitive register, the stock market. It also presents engaging essays -- representing over 20 years worth of research -- correlating social mood trends to music, sports, corporate culture, peace, war and macroeconomic trends. (The Wave Principle of Human Social Behavior, 1999
by Robert R. Prechter)  

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