|By Alan Hall | Excerpted from the July 2010 Socionomist
Originally published under the title “Asset Bubbles Don’t Surprise Socionomists”
[Ed: Most people—including Alan Greenspan, Ben Bernanke and the lion’s share of economists—say it is impossible to predict asset bubbles. For example, an article in the Harvard Business Review (HBR), “Why Asset Bubbles Will Always Surprise Us,”1 states, “It would be nice if we could predict bubbles; even nicer if we could prevent them.”
[Socionomists can’t prevent bubbles. But in this astonishing report, socionomist Alan Hall reveals that we can predict them. And therefore we can help people get out of their way.]
Socionomics predicted the biggest asset bubble of all time a decade before it inflated, as the following quotes from The Elliott Wave Theorist demonstrate:
- November 1982: “Make no mistake about it. The next few years will be profitable beyond your wildest imagination. Make sure you make it while the making is good. Tune your mind to 1924.”2
- April 1983 Special Report: “In 1982 the DJIA finished a correction of very large degree. The evidence for this conclusion is overwhelming … . The advance following this correction will be a much bigger bull market than anything seen in the last two decades … . The 1920s’ bull market was a fifth wave of a third Supercycle wave, while Cycle wave V is the fifth wave of a fifth Supercycle wave. Thus, as the last hurrah, it should be characterized at its end by an almost unbelievable institutional mania for stocks and a public mania for stock index futures, stock options, and options on futures … . Investor mass psychology should reach manic proportions, with elements of 1929, 1968 and 1973 all operating together and, at the end, to an even greater extreme.”3
Socionomics both (1) recognized the asset bubble in its infancy and (2) described its maturity. As far as we know, it is the only financial, economic or sociological theory to have done so.
Figure 1 is an updated chart from “The Wave Principle Delineates Phases of Social Caution and Ebullience,” a study in the August 2009 issue of The Socionomist. It shows the utility of Elliott wave pattern analysis in predicting asset bubbles—down, even, to their breadth and amplitude. (Note that as this Grand Supercycle wave [III] advanced, each Cycle-degree fifth-wave asset mania was larger, lasted longer and involved more asset classes than the one before.)
In the remainder of this extraordinary three-page article, Hall discusses why social mood makes preventing asset bubbles impossible. Continue reading to understand how you can employ future asset bubbles to your advantage and avoid getting hurt by their aftermath.
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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.
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