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Has Negative Social Mood Returned?

Two ex-Bear Stearns executives were found not guilty of fraud in November. However Bernanke, Geithner, and Goldman Sachs and other banks have seen increased scrutiny in past months. Banks are being reigned in. Obama wants restrictions on proprietary trading desks, bonuses, and generally the way Goldman Sachs and other banks manage their capitol. These concerns seem to be well received by the population.

In the case of Bernanke fighting for another nomination, Robert Prechter stated, "One sure sign of [primary wave] [3]'s arrival is what has happened to the Federal Reserve chairman over the past 3 weeks. Noting that government was resuming its bear market role, the January issue of Global Market Perspective(GMP) called for a blast of anti-Bernanke sentiment as part of the transition back to negative social mood," (21, 1/29/10 (Feb) GMP). With the wave [3] call aside, how can it be that there is suddenly negative social mood returning, particularialy since fundamentals and hence main street sentiment follow stock market prices? This delay of fundamentals is a fact that was pointed out in the 1/29/10 GMP itself a few pages earlier. Furthermore the government is merely a reflection of the people it represents and never leads change. Even if negative social mood has returned, it did not correlate to the beginning of [3] since there was a new recovery high last week in the S&P 500.

The answer is that negative social mood has not returned. When questioned, both Bernanke and Geithner stated that they handled the situation correctly and ensured that the worst is behind us. Following this they were allowed to keep their jobs. I believe the scrutiny of these individuals is just a psychological process that an affected party goes through to "assure" themselves that there is no larger problem. So the government and population are really trying to convince themselves that there is no larger problem, but the reason they feel inclined to speak out is a big warning sign! If the feelings of optimism and confidence in the foundation for future economic growth are truly genuine, then why would this questioning by the government and population be needed at all?

People tend to resist change and also try to justify the situations of the past and present. It appears that the emotions that are really taking place amongst the government and population are those of denial and complacency, not returning negative social mood. As was correctly pointed out in the Feb. edition of GMP, complacency is currently high; there is no economic data to back up the feelings of hope and optimism.

The ex-Bear Stearns executives were probably allowed to walk because of the feeling of hope that the worst is behind us. People do not press charges when they feel there has been a mutual understanding.

As for Goldman Sachs and other banks, the scrutiny is for the same reasons, but rules were imposed on them. In this case I also believe the new rules are simply the government and population's way of "fixing" the problem which really is a way of creating hope from the situation while remaining complacent. In a way unwritten rules were imposed on Bernanke and Geithner; "do not let this happen again!". The spirit is the same in all cases. Some blaming has been directed towards the banks, which are a handy target when assessing what happened. The key here is the word "happened" in past tense.

A feeling of complacency should be a strong indication that a stock market top is near. After a feeling of totally complacency is obtained by the population, the next move can only be away from complacency or towards concern. People sell stocks when they begin to worry.


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