Todd Harrison has vast trading experience as not only VP of worldwide derivatives at Morgan Stanley and Managing Director of Derivatives at the Galleon Group but also President of the Cramer Berkowitz hedge fund. He is also an Emmy award-winning producer with 21 years of experience on Wall Street. But now Harrison uses his expertise to educate to others about the complexities, trends and harsh realities of the stock market. Today Jill Noble will talk to him about Socionomics and how they affect market behavior. ~Tim McMahon, editor
By Jill Noble
Q&A: Minyanville CEO Todd Harrison on Socionomics
As the former President of the $400 million hedge fund Cramer Berkowitz, Harrison’s endorsement of social mood causality carries considerable weight.
Here’s a preview of his take on socionomics:
Jill M. Noble: You’ve said that “Until socionomics stops getting flagged by your spellchecker, you’re committed to helping the world understand what socionomics is.” How did you come to be so passionate?
T.H.: I’ve been a market practitioner for 22 years. Traditionally, what we’re taught is that the stock market is a leading indicator, economic numbers are a coincident indicator, and real estate is a lagging indicator — that’s pretty much tattooed on every graduate of any institution of higher learning/business school. It was “gospel.”
I’ve learned through the years, and there have been a number of influences that shaped the way I look at things. I’ve long-espoused the notion that the stock market crash of ’29 didn’t cause the Great Depression, but rather [social mood leading up to] the Great Depression caused the stock market to crash. For me, it was an intuitive misinterpretation of historical facts that I’ve always viewed as one of the greatest misperceptions about financial markets. It’s a subtle but entirely important distinction, and unbeknownst to me at the time, this is very much within the socionomic school of thought.
As my thinking about the markets evolved through the years, I wrote a column in 2007 called “The Short Sale of American Icons,” which talked about how the icons at the time — Paris Hilton, Britney Spears and Lindsey Lohan — had all fallen from grace. I asked whether this was indicative of a turn in social mood, and by extension if that could be a leading indicator for a turn in the market. And it was laughed at! How do the misfortunes of 3 starlets have anything to do with the inner workings of Wall Street? It was really a kind of “out-there” thought. Sure enough, not a year later…
JMN: We all know what happened in the markets when 2008 arrived.
T.H.: So I revisited this late last year and thought, “Wow. We have Elmo, Twinkies and Lance Armstrong all falling from grace… Tiger Woods falling from grace: what does it mean?” The next year the market came down but sure enough held, in large part (in my opinion) because the government hand guided the markets higher because we do live in a finance-based, derivatives-based interconnected world and “over their dead body” would there be another repeat of 2008. So I don’t think we live in free markets, per se, anymore, but I do think that, if left to its own devices, the world would continue to follow this pathway of social mood and risk appetites shaping financial markets.
JMN: So back to your non-traditional view of causality: former Social Mood Conference speakers Kevin Depew, Scott Reamer, and Peter Atwater have all mentioned that at Minyanville and elsewhere, the idea that social mood drives the markets has been very hard for people to hear. Why do you think there’s so much resistance to socionomics?
T.H.: Right, I think it’s because it’s not an idea that one wants to accept: we have cognitive biases and that’s part of what I want to talk about at the conference. I want to make it fun. I’ll talk about the bubbles and busts over the last 20 years. When you look at NASDAQ, Crude, Apple, Shanghai, they’re all the same chart — rinse and repeat! But why does this continue? I’ll cover the reactive nature of [financial media coverage] of the markets. Plus, of course I’ll have pictures of Hilton, Lohan and Spears in 2007.
JMN: It was not a good year for those ladies. What else do you have in store for us?
T.H.: I will talk about how the markets are now increasingly viewed as being in the hands of policymakers: if markets sell off, the outlook deteriorates and policymakers take action. If markets rally, the outlook improves and policymakers dither in a vicious circle.
How does this manifest? In 2005 I wrote about the “tricky trifecta:” societal acrimony, social unrest and geopolitical conflict. One of the things that was going to happen if the markets took their natural course was deflation, in which all asset classes would decline, the dollar would rally and markets would reset. Yet we were never allowed to take that medicine and instead were given drugs that masked the symptoms.
JMN: And what do you see as the result?
T.H.: On that continuum, we’ve had societal acrimony the pushback against big banks, BP, and people getting angry with the establishment. Then you have social unrest from the Tea Party to Occupy Wall Street, riots overseas and geopolitical conflict. It’s not something we want to see happen, but there it is.
JMN: Throughout your transition from Wall Street to Minyanville, has your interest in social mood increased?
T.H.: I’m probably more aware of it now than I was. I think it’s a discipline that we’re all “learning as we go,” to a degree. Socionomics is going to prove to be one of the more dynamic disciplines for all of us by the time it’s said and done.
Founder and CEO of Minyanville Media, Inc., Todd Harrison will discuss “Social Mood as a Leading Indicator to the Stock Market” at the 3rd annual Social Mood Conference April 13 in Atlanta.
JMN: Thank you for speaking with us. It’ll be really great to have you come in to speak in April.
T.H.: I’m really looking forward to it.
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