Social Mood Conference | Socionomics Foundation

[Article] Israel and Hezbollah

Article, Politics, Socionomic Theory
By Robert Folsom, July 14 2006

All the stories about the stock market today (and this week) repeated the same script:

“Stocks tumbled again Friday as traders weighed the exchange of blows between Israel and Hezbollah”

Gosh, I wonder what investors would do if they had to weigh something bigger than an “exchange of blows between Israel” and its enemies. Something like, well, huge troop movements, surprise attacks, immense tank battles, tens of thousands of casualties aka, a real Middle East war.

But wait, there’s no need to wonder — the past 60 years have seen several conflicts which fit that very description; indeed, you can see precisely what the Dow Jones and S&P 500 stock indexes did from the time the fighting started. Note the dates on the maroon vertical lines.

Figure 1 – The 1948 Arab-Israeli War, May 14 through June 11

Figure 2 – The Six-Day War, June 5 through June 10, 1967

Figure 3 – The Yom Kippur War, Oct. 6 through Oct 26, 1973

Had enough? Go re-read today’s financial news with the above in mind, the laugh’s on me. I won’t bother to show you a chart of the period when Israel previously invaded Lebanon — most historians date it from 1982 through 2000. Shouldn’t take any deep thought to recall what U.S. stocks did during those years. If conflicts in the Middle East move the stock market, then you tell me: Which direction does the “movement” appear to take?

In truth, wars in the Middle East DO NOT move the stock market. Every single day includes “good” and “bad” news of some sort, and it’s easy to retrofit that news to an up or down close in the Dow. It’s very believable, once you stop thinking for yourself.

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Most economists, historians and sociologists presume that events determine society’s mood. But socionomics hypothesizes the opposite: that social mood regulates the character of social events. The events of history—such as investment booms and busts, political events, macroeconomic trends and even peace and war—are the products of a naturally occurring pattern of social-mood fluctuation. Such events, therefore, are not randomly distributed, as is commonly believed, but are in fact probabilistically predictable. Socionomics also posits that the stock market is the best available meter of a society’s aggregate mood, that news is irrelevant to social mood, and that financial and economic decision-making are fundamentally different in that financial decisions are motivated by the herding impulse while economic choices are guided by supply and demand. For more information about socionomic theory, see (1) the text, The Wave Principle of Human Social Behavior © 1999, by Robert Prechter; (2) the introductory documentary History's Hidden Engine; (3) the video Toward a New Science of Social Prediction, Prechter’s 2004 speech before the London School of Economics in which he presents evidence to support his socionomic hypothesis; and (4) the Socionomics Institute’s website, www.socionomics.net. At no time will the Socionomics Institute make specific recommendations about a course of action for any specific person, and at no time may a reader, caller or viewer be justified in inferring that any such advice is intended.

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