Weekend of Doom: What Clinton, Trump and the Stock Market Drop Have in Common

The stock market saw a significant one week drop in the past week, so it's time to roll out the articles of doom.

MarketWatch: Dow 5,000? Yes, it could happen
The “q” looks at the net asset values of public companies and adjusts them for inflation. It makes some intuitive sense. Why would Widget Inc. be valued at $1 billion on the stock market if you could start the company from scratch for a lot less?

Right now, according to data from the U.S. Federal Reserve, the reading on the “q” is about 100%. (It was 106% at the last reading, on March 1, but since then the S&P 500 has fallen by about 6%.)

Since World War II, the average “q” reading has been about 70%. So if Wall Street tumbled just to its modern average valuation, that would take the Dow Jones Industrial Average down to about 12,000.

If we just look at the period 1949 to 1994 — in other words, before the gigantic, off-the-charts boom of the late 1990s — the historic average “q” reading for stocks was 57%. If the market falls to those levels, that would take the Dow to about 9,500.

And if the market fell to its historic bear market lows, namely 30% or so, that would mean a Dow of about 5,000.

Why might such a scenario happen? It’s not just about China, or Greece, or slowing earnings, or the “death cross” on Apple’s stock. It would be because, for the past 30 years, Wall Street stock prices have been increasingly boosted by financial factors: collapsing interest rates and Federal Reserve manipulation, culminating most recently in “quantitative easing.” But at some point, that game has to come to an end. When it does, it is possible — not certain, but possible — that valuation metrics could unwind all the way back down again.
For full social mood effect, the Ron Paul Doom video.
Media headlines reflect social mood. When the market tanks, lots of articles explaining why it fell, or predicting a further decline, are published. When stocks rebound, articles dismissing these concerns, or explaining why further gains are coming, are rolled out.

As for the long-term social mood trend, the public is in a state of increasingly negative mood since 2000, when stocks peaked and the bear market began. Stocks are now at a new high, but it doesn't feel like a high does it? It is a bear market rally peak, not a new high in social mood.
I addressed this recently in Negative Social Mood Trend: Race Relations Plummet and Dude Looks Like A Lady and If This Is Positive Mood, Negative Mood Is Going to Be A Doozy. The latter was a response to an argument about the current push for inclusiveness as a reflection of positive mood.

A recent article shows how this inclusiveness continues to be tinged with negative mood. The latest target of exclusion is hoop skirts. Yes, hoop skirts are racist.

WaPo: Remove the Southern belle from her inglorious perch
But in that sense UGA was really no different from other Southern schools. Long after many universities had officially done away with a variety of Old South symbols, the feminine figure most clearly identified with Dixie — the Southern belle — continued to enjoy free rein. College administrators who had long since banned the Confederate battle flag, nixed the singing of “Dixie” and given plantation-owner mascots the boot were still saying yes to the dress.

...The crude campus racism would soon pale next to the June tragedy in Charleston, S.C. After the mass murder of nine African American churchgoers, allegedly by a white supremacist who blatantly linked his views with the Confederate banner, the U.S. public engaged in long overdue soul-searching about the true meaning of Confederate symbolism. One result has been the steady removal of its signs from civic life. But related conversations have not necessarily taken place, and the question remains: Will feminine racial symbols — less noticed, highly effective — ever be similarly called to task? Will observers ever recognize what the hoop — and the contemporary belle — have to do with the hate?

While donning a hoop skirt on occasion may not constitute a hate crime (whether it is a crime of fashion is another matter), make no mistake: The Southern belle performances routinely staged on campuses across the South constitute choreography of exclusion.
In periods of peak mood, people are genuinely inclusive. The move is a positive one of opening. During a period of negative social mood, people become exclusionary. At the peak of a bear rally, it seems people are not really inclusive, rather they attack those who are perceived as exclusive. Conflict is a feature of negative mood and the underlying tone is conflict, rather than coming together.

More broadly, the rise of immigration as a political issue, correctly predicted here years ago based on the socionomics theory, also reflects negative mood. Currently, Donald Trump is in first place with a moderate immigration policy of deporting illegal aliens, securing the border and ending birthright citizenship in some cases. The extreme peak mood policy, which Europe and Australia have moved away from since 2000, is the current U.S. policy of letting illegal aliens stay, an unsecured border and anchor babies including Chinese birth tourism. As I put it in The U.S. Swings Right: House Majority Leader Defeated in GOP Primary
The U.S. had extreme immigration policies in the year 2000, though peak social mood meant these policies were in line with extreme optimism. As social mood decline, most nations began shifting right, but the establishment in the U.S. pushed into more extreme positions such as open borders. In most of the current immigration deals discussed in Washington, there's a combination of amnesty and increased worker visas lobbied for by big business. The result was a leadership far out of touch with public sentiment (generally polls show a majority of Americans want to restrict immigration, far from the current position to increase immigration and grant amnesty to illegal migrants).

Now this widening chasm has been closed by the defeat of House Majority Leader Eric Cantor. This is the first time a sitting majority leader has ever been defeated in a primary. Cantor outspent his opponent, economics professor David Brat, 20-to-1. The major issue? Amnesty and immigration, and how it relates to low wages.

Cantor was very heavily funded by corporate interests. He was an otherwise very conservative candidate in a conservative district in Virginia, but voters rejected him due to his position on immigration, specifically amnesty.

This issue in the U.S. is almost exactly like the situation in the U.K. There is no major political party and no major politician discussing this issue. If any presidential candidate takes up immigration restriction as an issue, they will meet the same vitriolic resistance that faced UKIP, but the results at the ballot box will be the same.
Later it was Immigration Issue Set to Explode in America; Prepare for Political Volatility
A similar shift could be ready to unfold in the United States. Opinion on immigration is difficult to gauge because wording is often fuzzy and left open to interpretation. For example, in the U.S. polls often ask "Are you in favor of immigration reform?" In the mind of a voter, immigration reform could range from amnesty for illegals, to deporting even legal immigrants who may have committed crimes or gone on welfare. When poll questions ask clearer questions, some opposition to immigration usually turns up.
Americans have been shifting their position on immigration for 15 consecutive years, but only in 2015 did the political class realize it because the media and political class (including the billionaire donors) tried to oppose the change in mood and push an open immigration policy with propaganda such as weighted poll questions. The country is 15 years ahead on the issue, in the direction of immigration restriction.

Unless another politician picks up the immigration issue (Bernie Sanders is also for immigration restrictions on the Democratic side), Trump is going to win the Republican nomination and then the general election. There may be a GOP politician who calls for a moratorium on immigration, possibly in this very election cycle. The media will go crazy and say the GOP is costing itself Hispanic votes, but the deeper and unbiased polling data says if the election is about immigration, it will be a victory for the restrictionists (see: Political Revolution Comes to America Via Immigration Issue). Even without a bear market in stocks the odds are high, but if the market turns lower, the odds start going much higher.

Finally, Hillary Clinton's email scandal may also be related to the public mood. Her campaign's response, including Hillary joking: "By the way, you may have seen that I've recently launched a Snapchat account. I love it. I love it. Those messages disappear all by themselves," shows her campaign doesn't realize the mood of the country is negative. When mood is negative, there is a greater chance the public will demand punishment, instead of offer forgiveness, to political and business leaders. A defiant and combative response wins during positive mood, but it doesn't work as often when the mood is negative.

Top 2016 candidates struggle to change the subject
Absent something new, "the story line tends to drift to the negative," says Winston, and that trend is particularly pronounced in a time of general voter dissatisfaction with political discourse and the direction of the country. Neither candidate was able to keep from drifting off course, he says.

Once news emerged early on that Clinton had used a private email account and server as secretary of state, the not-yet-announced candidate knew she'd have to deal with the consequences. But her campaign miscalculated the staying power of the issue and the various investigations it would spawn.

..."The lesson that the Clintons learned in the 1990s is that it's not necessary to immediately make all information available, and if you wait long enough, the tables eventually turn," Schnur said. "So even if there are a lot of smart people sitting at her campaign table telling her otherwise, human nature is going to influence her to try to duplicate a past success."
The 1990s was a period of very positive and rising social mood into the 2000 stock market peak.

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