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By Charles Delvalle
Dear Reader,
As I walked through the bustling malls in Oregon this past December, I couldn’t help but notice a trend that seemed to be coming back.
Nearly every store I walked into had stuff like Super Mario Brothers shirts and sweaters. Or Zelda power drinks. Sometimes I even saw Mario and Zelda action figures.
Just in case you don’t know, Mario and Zelda are both characters from old Nintendo games.
Now, I personally love Nintendo stuff. It’s freaking cool. And anything that can bring me back to my carefree childhood days makes me pretty happy. But I couldn’t help but wonder why Nintendo is coming back into style.
At first, I attributed this to the Nintendo Wii’s popularity, especially among young people. Logical, right? But then I read about something else that made me reconsider.
It’s called socioeconomic theory.
What this crazy complicated name implies is that society’s mood dictates changes in everything from clothing styles to the stock market. And it’s come up with ideas that go contrary to what you’ll read in The Wall Street Journal.
For instance, most people believe that wars are good for the stock market. After all, if government spending rises and helps prop up the economy and cause growth, then stocks should rally, right?
But a study actually showed that times of peace tend to go hand in hand with a rising stock market. And wars usually start after a bear market is taking place. The conclusion here is that wars usually start when society is uneasy and distressed.
Now, an important thing to realize is that a falling or rising stock market doesn’t cause wars. In socioeconomic theory, the stock market is used as nothing more than a barometer of social mood.
If the stock market is rising, it usually indicates that people feel good about the future. They are more likely to “stay the course” and reelect a president, buy a new home, spend more money on things they want, and dress in crazy ways.
But if the stock market is falling, people are a little scared and freaked out. They cut back spending, stop taking bigger risks like buying a home, start getting angry, and look for an outlet for that anger. That’s why wars usually start in bear markets. And it’s also why presidents lose elections (hence the phrase, “It’s the economy, stupid.”)
If you apply this theory to what we’re seeing today, the conclusions are remarkable.
During the recent bull run, everyone took big risks and bought homes on interest-only mortgages, they had more kids, and even voted to keep President Bush in office. The social mood was pretty good. And that mood was reflected by the bull market stocks were having.
But now, consumer spending and sentiment is dropping, unemployment is climbing, and the market is entering bear territory. And what goes without mentioning is the fact that a Democrat is more likely to become president than any Republican.
People are upset and they want change. Since this is the case, it should be obvious that a recession should follow. And that’s what makes socioeconomics so powerful. Because the basic staple of this theory is the idea that social mood dictates everything.
Now that I see Nintendo styles everywhere, I realize one of the reasons why it’s coming back is due to a shift in societies. After all, Nintendo was most popular during the recession in the early 90s. Sound like a coincidence? It could be, but consider this …
Recessions usually have a lot more scary or depressing movies hitting the box office (as society’s mood sours). So is it coincidence that the scary movie Cloverfield just set a box office record for a January release? In just one weekend, the movie grossed more than $40 million.
Another depressing new movie was Will Smith’s latest I Am Legend. It’s abouta cure for cancer that eventually turns most of the human race into blood lusting zombies. Since December 14, this movie has grossed $248 million!
It’s clear that society’s mood is souring. Even pop stars such as Britney “Tears” are having public breakdowns. It’s a tragedy in real life. And the media is OBSESSED about it.
I don’t mean to paint a somber picture here. I’m just letting you know that society is following a recessionary pattern right now.
So what do you do with that knowledge?
You start playing it safe. Invest in big-name, dividend-paying companies that can whether recessions. Put your money into consumer staples. And my favorite course of action - start shorting the weakest companies and riding them down.
If you don’t have any good candidates to invest in, don’t be afraid to keep your money in cash. It’s better to have money than to lose it because of a stupid bear market.
Good investing,
Charles
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