The following post was provided by Minyanville and published with author's permission.
The leaders coming out of a crisis are rarely the same as those who enter it. That's true for corporate America and it applies to many of the folks high up on the societal pedestal.
In the summer of 2007, Minyanville openly asked if the fall from grace of well-known icons such as Paris Hilton, Lindsay Lohan, and Britney Spears was indicative of the shifting social mood and might be predictive for financial markets.
The notion seems silly on its face; the obsession with the whereabouts of a trio of social starlets couldn't be further removed from the inner-workings of Wall Street. We pondered the question, however, as social mood and risk appetites shape financial markets; sure enough, a major top transpired a few months later.
A chasm of discord has again emerged in American society. It's evident in the great divide between the "haves" and "have nots," red states and blue states, and Main Street and Wall Street. Moreover, high-profile scandal makers such as Anthony Weiner, Arnold Schwarzenegger, and Dominique Strauss-Kahn may suggest that the socionomic tide is turning anew.
Early last year, Peter Atwater of Minyanville offered:
As we enter 2010, please review investment holdings with the growing wave of populism in mind. I anticipate that in the year ahead, the phrase "For those to whom much has been given much is expected" will take on new meaning.
Fast-forward to today; financial services, health care companies, and energy concerns are widely perceived as "evil" through a mainstream lens. From the bulls-eye on the back of "fat cat" bankers to tough talk on the beltway -- the White House vowed last year to keep a "boot on the neck of British Petroleum (BP)" -- it's hard not to notice the forward path of the wrath.
Minyanville has long warned of the "tricky tri-fecta" of societal acrimony, social unrest, and geopolitical conflict. Between the Tea Party uprising, European riots, and the spring of discontent percolating in the Middle East, it's safe to say that we're migrating across that unenviable spectrum.
At what point does an industrialist become a robber baron? Or a savvy speculator a profiteer? At what point does success become privilege? The answers to these questions have profound implications for the future of free-market capitalism in a finance-based global economy. If we don't stem this progression, the bottom line of our bank accounts may be the least of our concerns.
One of the great misperceptions in financial market history is that The Crash caused The Great Depression when in reality the roles were reversed. While public psychology can be manipulated for extended periods of time, free will can never be caged and the attendant social mood will shape behavioral patterns, and by extension our financial decision-making processes.
Financial markets have morphed into a matter of national security and we must respect the motivated agendas of central bankers around the world. When the German Chancellor declares war on speculators and the Greek government hints at legal recourse against stateside financial institutions, we would be wise to respect the unexpected and appreciate the unintended consequences that may follow.
Doing the math -- not only abroad but with regard to the state of our states -- upward taxation and austerity measures won't cut it, although we'll see aggressive efforts in those regards, neither of which is pro-growth. More likely, we'll eventually experience something seismic on the regulatory front akin to what we witnessed in September 2008, and that remains the single biggest risk for the bears.
There are two forward paths: On one side is debt destruction, asset class deflation, and an outside-in globalization once the dust settles. On the other we continue to give the global drunk another drink with hopes he doesn't sober up. The sad truth is that he one day will and our children will be forced to pick up the bar tab if we don't change our ways, and soon.
As we together find our way, prices will serve as the ultimate arbiter of variant views and the friction between opinions will be where true education is found. That's why it's so important to understand the crosscurrents, respect potential catalysts, and assimilate them into your risk profile.
There's no shame in admitting it's hard, there's only shame in pretending it's not. As we edge though this age of austerity, navigate the increasingly complex societal structure, and find our way to better days, I will simply offer that those who aspire to the lifestyles of the rich and famous should be careful for what they wish.