Social Events – Part FIVE

How to Use Socionomics to Make Specific Social Forecasts

By Chuck Thompson, originally published in the January 2012 Socionomist Download the Complete Issue (839 KB)

We’ve stated that socionomics is a tool for understanding the “tendency of the social system,” not a crystal ball for predicting specific events.1 Having said that, Robert Prechter and others at the Socionomics Institute have made accurate, detailed forecasts using socionomics.

One recent example is the predicted breakup of the European Union, which Prechter and Pete Kendall first anticipated in 1998—four years before the first euros even exited the printing presses.

How did they do it? When is it appropriate to use socionomics to make a specific forecast, and what principles should you follow?

In this article, we’ll use our dramatic, anti-intuitive forecasts for the disunion of Europe—issued even as the union itself was being established—to demonstrate socionomic principles in action.

Staying off the EU Bandwagon The most helpful socionomic forecasts are the ones that no other method anticipates.

In 1989, when the Berlin Wall came down, German chancellor Helmut Kohl and French president François Mitterrand saw an opportunity for European integration. But calls for a united Europe had been stirring for decades, as worldwide positive social mood continued its inexorable push during the second half of the 20th century. A few weeks after the euro entered circulation on January 1, 2002, Rodrigo Rato, chairman of the European Union’s Council of Finance Ministers, proclaimed, “I don’t think Europe has ever enjoyed such good economic conditions.”2 Robert Mundell, who won the Nobel Prize for economics in 1999, said that in his judgment there was not a single country in the world that would lose from the advent of the euro.3 In addition, Mundell and C. Fred Bergsten, director of the Peterson Institute for International Economics, both argued that the euro would challenge the dollar for global supremacy.4 The following year, when leaders of 10 countries signed treaties to join the European Union, French president Jacques Chirac said, “A wonderful dream is coming true.”5 And when EU leaders signed their first constitutional treaty in 2004, the union’s president, Jan Peter Balkenende announced, “Today, Europe enters a new era.”6 Expressions of optimism and assured success revealed a consensus opinion held at the highest level of intellect and political and economic authority.

Against this ebullient backdrop, Elliott Wave International’s analysts stood virtually alone in their assertion that the creation of the euro and the union “represented merely an optimistic extreme [accompanied] by decades of rising stock prices” and, as such, were doomed to fail.”7 EWI’s commentaries to this effect number in the dozens; following is a small sampling:

1998 — The New York Times reported on April 28 that by the end of the week, most countries in Western Europe would formally agree to “irrevocably bind their currencies together.”8 Pete Kendall wrote, “Since joiners will not be allowed to leave, this is a rather strong expression of inclusionism, as well as a setup for future conflict.”9

1999 — In The Wave Principle of Human Social Behavior, Prechter listed numerous expressions of peace in the late 1990s, including the consummation of the European Union following 1,500 years of repeated conflict in the region. He added, “This multi-year pageant of apology, concession and agreement and the concurrent wonderful atmosphere of international peace and cooperation are consistent with my Elliott wave case that an uptrend of Grand Supercycle degree is ending.”10

2005 — EWI’s Pete Kendall noted that the euro was managed by a group of trading partners who had been “historically distinct if not involved in warring with each other.” He wrote,

During the bear market, the independent nations of Europe will rediscover their borders and rekindle the animosities that kept them apart for centuries.11

2006 — Kendall forecast that much of what had come together in Europe would “come apart in coming years.”12

2007 — Kendall noted that the behavior of Germany and Russia in the 1930s and 1940s represented the extreme form of the exclusionary impulse that occurs during extended negative mood periods. He added, “The EU expresses the opposite, inclusionary force, one that has apparently run its course.”13

2009 — EWI’s Brian Whitmer wrote, “Up ahead in the high beams, we can see the EU’s car wreck getting even worse. The [recent surge in positive social mood] might lessen tensions a bit, but, by our count, the strongest part of the decline remains ahead.”14

2010 — Whitmer stated, “Europe’s technical condition as a whole is only growing worse. The rallies in several more markets ended last month, and evidence is strong that a third-wave decline in most of peripheral Europe has begun. Europe’s sovereign debt crisis is escalating as expected.”15

2010 — Kendall wrote, “With the aid of the Wave Principle and the insight it provides into the nature of bear markets, the euro’s eventual dissolution can only be viewed as virtually unavoidable.”16

European Unification Waxes and Wanes with Stock Prices

Figure 1

Recently, the effects of the new trend toward negative social mood have become blatantly manifest. Sovereign debt crises have plagued Ireland, Portugal, Spain, Italy and Greece. Agencies have cut bond ratings across Europe. Economists doubt that the European Financial Stability Facility, one of three EU bailout funds, is large enough to “assure markets that Italy and Spain are protected,”17 and now, Europe’s central banks are considering what to do should countries leave the euro zone. New studies reveal that investors in Greece, Portugal and Italy are increasingly converting deposits into Swiss francs, setting up trusts as far away as Singapore and buying real estate outside the euro-zone.18 And in last year’s elections in Finland, the True Finns, an anti-establishment, anti-euro party, increased their voting strength from 4% to 20% in Finland’s parliament.

Granted, the European Union thus far has held together. But now, more than 13 years after Prechter and Kendall’s initial forecast, dissolution is being treated as a viable topic in the mainstream press.

People now take intra-European tensions as logical and given. But what about 10 to 14 years ago, when the union was established with nearly universal fanfare? Were today’s events predictable then? The answer is yes—provided you were basing your expectations on socionomics rather than then-current sentiment or events.

Looking Far Ahead With Socionomics How did socionomics enable such a clear, specific forecast in the face of so much ebullience? Let’s take a look at some of the principles that came into play.

1. Social Mood is Unconscious, Powerful and Reflected throughout Society As Prechter noted in the June 2010 issue of The Socionomist, social mood—which underlies social actions—is unconscious.19 To recognize how mood is affecting current events, you must train yourself to see it, step outside of it, and judge it objectively. This means staying unmoved by mood-impelled arguments posited by friends, politicians, analysts and the media. This takes practice and fortitude.

2. Social Mood Determines Events, Not Vice Versa Increasing negative mood, not any particular event or set of events, accounts for the worsening economic scenario in Europe. As Whitmer stated in the November 2011 issue of The European Financial Forecast:

The fact is, the euro neither united Europe in the late-1990s, nor is it dividing Europe today. Again, the euro was the result, not the cause, of a dominant mood trend that operated silently behind the scenes. Knowing it’s there and understanding how it works will keep you dozens of steps ahead of the crowd.20

In a recent interview with Kate Welling (click here: http://goo.gl/35N3S), Prechter explained the causality:

Let me show the chasm of difference between my way of thinking—with socionomics—and the way most futurists and economists approach things. When the European Union was being formed people said, “What does it mean?” And they speculated that there would be more cooperation and trade, more power centered in Europe, and so on. They thought the EU was a new cause, so they were trying to figure out the results. Under socionomics, the formation of the EU wasn’t a cause; it was a result. At the peak of the greatest optimism of all time, these countries, which had been fighting each other off and on for a thousand years, decided to come together. That’s a result of extremely positive social mood. And at the time, in 1999 and 2000, we said this union is going to fail because it’s coalescing at one of the greatest positive-mood extremes of all time; there’s no way it’s going to be able to survive the downturn in social mood. And look: Just a dozen years later it’s already starting to break apart. It’s like ice floes in the North Atlantic: There’s no way it’s going to stay together. Unions that are formed at major social-mood bottoms, such as the United States at the end of the 1700s, tend to hold together very well. But I think by the time the global bear market is over, the European Union won’t exist.

3. Extreme Events Presage Imminent Reversals Non-socionomists miss reversals because they don’t recognize the influence of social mood, which changes direction in a probabilistically predictable fashion, in creating the events upon which they are basing their judgments. The conventional forecaster’s approach is, “As today is, so shall tomorrow be, only a little more or a little less.” In contrast, socionomists work from the position that “extremes in social psychology prepare the socionomist for coming changes.”21 Further, when social mood is extreme, it “implies nearness of a trend change in the opposite direction.”22

We do not advocate simple contrarianism. Often, the dominant trend will remain in effect for some time. Rather, it is mood event extremesthat are key to calling dramatic reversals in social trends.

Social Polarities Common to Positive/Negative Mood

Figure 2

4. Mood Polarities Describe Social Climate Extremes In The Wave Principle of Human Social Behavior (1999), Prechter listed 35 pairs of polar tendencies (Figure 2) that society tends to express to a degree commensurate with the extremity of positive or negative social mood. Referencing these polarity poles helps you envision the broad climate within which you can then posit specific events and outcomes. For example, one set of polarities evident in the development of the European Union is inclusion/exclusion (#23). Prechter wrote about this polarity,

A waxing positive social mood accompanies increased inclusionary tendencies in every aspect of society, including the cultural, moral, religious, racial, sexual, economic, national, regional, social, financial and political. A waxing negative mood accompanies increased exclusionary tendencies in every aspect of society. With that realization, you can predict increasing cooperation and acts of brotherhood in all those areas in bull markets and the opposite in bear markets.23

At the height of the decades-long bull market in 1999, “euro-phoria hit peak pitch,” and during the following eight years the EU rushed to include more and more nations.24 This push for expansion occurred “despite concerns about the financial stability of prospective entrants”14 and other warnings of underlying problems, including plunging equity/gold ratios. When the trend turned toward negative social mood, the impulse to exclude set in. In March 2010, Hochberg and Kendall noted some specific animosities that were being rekindled in Europe:

In Greece, for instance, strikes are escalating and growing more violent while an “overwhelming majority of Germans are hostile to the idea of bailing out Greece.” The crisis “revived old resentments and stereotypes between Greeks and Germans,” says the latest Reuters dispatch from Athens. “Now Greeks are starting to get outraged at German outrage.” As we go to press, Athens riots are intensifying and Greece’s deputy prime minister attacked Germany over its Nazi past.16

Recently, The Washington Times noted that German taxpayers are “fed up with having to constantly bail out suicidal spendthrift policies in irresponsible countries.”25

Another polarity in play within the European Union is concord/discord. Some European leaders are striving to increase the size of the European Financial Stability Facility. But The  Wall Street Journal reports:

Discussions to increase the lending capacity of the European Financial Stability Facility … have yielded no real progress as major differences persist among member governments, said a European diplomat26 (emphasis added).

Another negative-mood polarity—convergence/polarization—is coming into play as EU nations begin to “rediscover their borders” and “rekindle the animosities that kept them apart for centuries,” as EWI’s Hochberg and Kendall predicted in 2005. As the New York Times put it last October, nationalism is now “degrading the collective responsibility and shared sovereignty” that previously defined the EU.27 In August, Hans-Olaf Henkel, former president of the Federation of German Industries and an early supporter of a unified European currency, wrote an article in Financial Times calling for Austria, Holland, Germany and Finland to break away from the EU and launch their own currency. And a senior EU official reports that Germany and France have been exploring the idea of a smaller euro zone.28

5. Leaders Cannot Affect Social Mood Most forecasters make the mistake of assuming that powerful leaders have the ability to control the waves of mood in society. Nothing could be further from the truth. As Prechter wrote,

[There has been] failure after failure of officials to control money, interest rates, commodity prices, retail prices, stock markets, and economic growth and contraction.  . . . mechanics and “tools” are of no assistance unless you are tinkering with a machine, and human society is not a machine. Harboring an illusion of being in control of the waves is a guarantee of getting caught up in them. This is yet another illusion that socionomics has the power to eliminate.29

Social mood encompasses all of society. By definition, nearly everyone is going to be wrong about the social future at the extremes. No leader or social policy will anticipate a coming reversal; doing so is up to the individual who knowingly stands apart from mood.

Conclusion As we have noted repeatedly, socionomics is not a crystal ball. But sometimes socionomics can identify which specific events are more or less likely to happen during various mood phases. And often, that insight can give individuals an extraordinary view of the future, to which others are oblivious.■

Chuck Thompson is the Editor of The Socionomist.


CITATIONS

1Hall, A. (2011, September). To apply socionomics properly, follow these principles. The Socionomist.

2Daly, E. (2001, January 31). Council leader says euro is just a start. The New York Times. Retrieved from http://www.nytimes.com/2002/01/31/business/council-leader-says-euro-is-just-a-start.html

3Devitt, J. (2002, September 18). Nobel laureate Robert Mundell sees bright future for euro. Columbia News. Retrieved from http://www.columbia.edu/cu/news/02/01/robertMundell.html

4Bergsten, C. F. (2002, January 4). The euro versus the dollar: Will there be a struggle for dominance? Peterson Institute for International Economics. Retrieved from http://www.iie.com/publications/papers/bergsten0102-1.pdf

5Bruni, F. (2003, April 17). 10 countries sign to join European Union. The New York Times. Retrieved from http://www.nytimes.com/2003/04/17/world/10-countries-sign-to-join-european-union.html

6Bowley, G. (2004, October 30). Heads of state sign the European Union’s first constitution. The New York Times. Retrieved from http://www.nytimes.com/2004/10/30/international/europe/30europe.html

7Whitmer, B. (2010, March). The “flawed euro” concept takes a giant leap forward. The European Financial Forecast.

8Norris, F. (1998, April 26). The euro: High wire without a net. The New York Times. Retrieved from http://www.nytimes.com/1998/04/26/business/market-watch-the-euro-high-wire-without-a-net.html

9Prechter, R. (1998, May). Cultural trends. The Elliott Wave Theorist.

10Prechter, R. (1999). The Wave Principle of Human Social Behavior (p. 266). Gainesville, Georgia: New Classics Library.

11Kendall, P. (2005, May). Global wrap. The Elliott Wave Financial Forecast.

12Kendall, P. (2006, December 18). New EU entrants: The straw that breaks its back. Socio Times. Retrieved from http://www.sociotimes.com/archives/2006/12/new_countries_w.aspx

13Kendall, P. (2007, October 10). Belgian split places euro union on brink of a big break. Socio Times. Retrieved from http://www.sociotimes.com/archives/2007/10/belgian_split_p.aspx

14Whitmer, B. (2009, April). A rearview mirror or a windshield? The European Financial Forecast.

15Whitmer, B. (2010, December). Bottom line. The European Financial Forecast.

16Kendall, P. (2010, March). Special section: Where credit is due. The Elliott Wave Financial Forecast.

17Ames, P. (2011, December 9). EU leaders’ latest agreement still leaves unfinished work. USA Today. Retrieved from http://www.usatoday.com/money/economy/story/2011-12-09/europe-to-do-list/51766008/1

18Ball, D., Cohan, S., & Bouras, S. (2011, December 19). Beyond borders: Europeans stash money elsewhere. The Wall Street Journal. Retrieved from http://online.wsj.com/article/SB10001424052970204844504577098513910520708.html

19Almand, M., & Prechter, R. (2010, June). An interview with Robert Prechter, Jr.: Where I believe socionomics is heading. The Socionomist.

20Whitmer, B. (2011, November). Cultural trends. The European Financial Forecast.

21The Wave Principle of Human Social Behavior (p. 231).

22The Wave Principle of Human Social Behavior (p. 336).

23The Wave Principle of Human Social Behavior (p. 230).

24Kendall, P. (2011, November). The next big craze: The euro-haircut. The Elliott Wave Financial Forecast.

25Decker, B.M. (2011, October 21). Europe’s savior: A new Deutsche Mark. Viable economies need to break away from collapsing euro currency. The Washington Times.Retrieved from http://www.washingtontimes.com/news/2011/oct/21/europes-savior-a-new-deutsche-mark/

26Froymovich, R., & Stevis, M. (2011, November 14). Europe’s rescue funds get little traction. The Wall Street Journal. Retrieved from http://online.wsj.com/article/SB10001424052970204323904577038302817178604.html

27Erlanger, S. (2011, October 19). Euro, meant to unite Europe, seems to rend it. The New York Times. Retrieved from http://www.nytimes.com/2011/10/20/world/europe/euro-meant-to-unite-europe-seems-to-be-dividing-it.html?pagewanted=all

28Toyer, J., & Breidthardt, A. (2011, November 9). French, Germans explore idea of smaller euro zone. Reuters. Retrieved from http://www.reuters.com/article/2011/11/09/us-eurozone-future-sarkozy-idUSTRE7A85VV20111109

29The Wave Principle of Human Social Behavior (p. 365-370).



Socionomics InstituteThe   Socionomist is designed to help readers understand and anticipate   waves of social mood. We also present the latest essays in the field of socionomics,   the study of social mood; we anticipate that many of the hypotheses will be   subjected to scientific testing in future scholarly studies.

The Socionomist is published by the Socionomics   Institute, Robert R. Prechter, Jr., president. Alan Hall, Ben Hall, Matt   Lampert and Euan Wilson contribute to The Socionomist. Mark Almand,   executive editor. Chuck Thompson, editor.

We are always interested in guest submissions. Please email    manuscripts and proposals to Ben Hall via institute@socionomics.net.   Mailing address: P.O. Box 1618, Gainesville, Georgia, 30503, U.S.A. Phone:  770-536-0309.

All contents copyright © 2011 Socionomics Institute.    All rights reserved. Feel free to quote, cite or review, giving full credit.  Typos and other such errors may be corrected after initial posting.

For  subscription matters, contact Customer Service: Call 770-536-0309  (internationally) or 800-336-1618 (within the U.S.). Or email customerservice@socionomics.net.

For  our latest offerings: Visit our website, www.socionomics.net,  listing BOOKS, DVDs and more.

Correspondence is welcome, but volume of mail often precludes    a reply. Whether it is a general inquiry, socionomics commentary or a research  idea, you can email us at institute@socionomics.net.

Most economists, historians and sociologists presume that    events determine society’s   mood. But socionomics hypothesizes the opposite: that social mood determines   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 © 2011, 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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