Weekend Feb 13 2022
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Dennis
CULTURAL TRENDS
This Suggests Russia Will Go In
By Murray Gunn, European Short Term Update, Interest Rates Pro Service, Currency Pro Service
A multi-year triangle gives us a clue.
Triangles are one of the most recognizable patterns in the Elliott Wave Principle. As with all wave patterns, they occur at every time scale and the large-degree triangles are especially interesting because they often contain a notable socionomic element.
Large-degree triangles in rallies are bear markets. Sideways movement in nominal terms means that, with consumer price inflation generally positive, in real terms, market value is being lost. Large-degree triangles during stock market rallies are manifestations of a negative social mood. It's not surprising, therefore, that the ends of triangles often correspond with a news event of a social action that has been driven by this negative mood.
The chart below shows the Russian Trading System Index. This is a free-float capitalization-weighted index of 50 Russian stocks traded on the Moscow Exchange, calculated in U.S. dollars. As such, it takes into account the performance of the Russian ruble as well as the stock market. Since 2008, the index appears to have traced out a multi-year triangle, with the final wave E down now in operation.
Notice that it was towards the end of the decline in wave C of the triangle that Russia made its first incursion into Ukraine in August 2014, escalating it further in November of that year. Fast forward to 2022, and with over 100,000 Russian troops dug in on the Ukraine border, another incursion appears likely. Nevertheless, Russian President Putin states that he has no intention to invade.
Given the Elliott wave pattern, and what appears to be the waxing anger of the final wave lower in social mood, we take those statements with a bucket-full of salt. This sociometer is anticipating that a dramatic social action is coming.
If that is the case, over the next couple of years I imagine a few shrewd individuals who are flush with assets paraphrasing another line from that song. 'Lighten up while you still can, don't even try to understand.'
A Deeper Socionomic Dive into Russia…
By Brian Whitmer, European Financial Forecast (EFF)
In December, we covered the significance of Russia's troop deployments to its borders with Belarus and Poland. "This kind of military maneuvering is precisely what dominates during the tail end of a bull market. Armed conflict, in contrast, comes later, in the midst of or shortly after a bear market." (GMP, December 2021)
Socionomics explains the reason for the delay. Namely that stock indexes reflect social mood more or less immediately, whereas it takes time for negative mood to develop into the trade disputes, financial disagreements and territorial arguments that ultimately provoke open warfare. At this point, time is running out for peace in the region, because stock markets have peaked in at least three former Soviet states. Shown here, Russia's RTSI has erased all of its 2021 gains, Ukraine's stock market is off 26% since its October 2021 high, and the 238 stocks that trade on the Kazakhstan Stock Exchange have collectively dropped 11%.
Right on cue, political posturing is transitioning into open hostility. Last month in Kazakhstan, small pockets of initially peaceful protests quickly mushroomed into "unrest over authoritarianism and corruption, drawing thousands of people onto the streets in the biggest threat in decades to the central Asian country's leadership." (1/17/22) On January 5, protestors set fire to Almaty City Hall and seized the international airport. In response, the Kazakh government invoked a shoot-to-kill policy and enlisted help from the Collective Security Treaty Organization (CSTO), a Moscow-based group that provides for the common defense for Armenia, Belarus, Kazakhstan, Kyrgyzstan and Tajikistan. All told, it took about a week to quash the rebellion. Kazakhstan's president announced the end of the peacekeeping mission on January 13, but, if a regional stock market top is in place, maintaining anything close to actual peace will become akin to impossible.
Putin To Become Public Enemy No. 1
CSTO's deployment of troops was significant for another reason: It was the organization's first operation since its peacekeeping provision was signed near a major stock market top in October 2007. By now, however, subscribers should be well prepared for increasing conflict, as we have routinely updated the best proxy for social mood in the region: Russia's RTS Index. Prices peaked at an all-time high of 2,498 back in May 2008 and have traced out a contracting triangle over the past 14 years. The best interpretation of the near-term wave structure is that wave D topped out this past October, and wave E down remains incomplete.
Putting on our socionomics hat, the bottom of Primary wave E will almost certainly coincide with some sort of military incursion. The reason stems from two observations: (1) Russia has a long history of bear-market aggression, and (2) E-waves of triangles often end on news. More incursions will follow if stocks keep falling, and if stocks fall to new bear market lows, the entire region could descend into abject chaos.
In fact, this latter scenario remains distinctly possible. In the past, we have observed that Putin's reputation invariably rises during stock market rallies, so his December 2021 image on the cover of the conservative American news magazine, Newsmax, was a fitting tribute to wave D up. Beneath the headline, "Vlad the Great," the article read, "He's evil, he's cunning, and he's the most powerful man in the world." In other words, Putin's still lofty public esteem suggests that social mood remains quite positive. In fact, a comparable cultural preoccupation with Putin emerged at the RTSI's peak in 2008. Back then, Time magazine honored Putin as Person of the Year just before the index embarked on a 60% crash. The public lionized Putin again during the RTSI's initial countertrend bounce in wave B. Near the top of that rally, the January 2011 GMP stated that "only a bull market of historic proportions can account for Russia's boom despite a dysfunctional government and economy." At the time, we cited recently leaked cables from the U.S. Embassy in Moscow, which showed that even at the height of Putin's purported control of a booming economy in 2006, as many as 60% of his orders were not being followed. Said GMP, "when social mood surges higher, little things such as the powerlessness of a head of state can do nothing to derail it." (GMP, January 2011)
It's much the same today. Russia is by far the most powerful former Soviet state, with the strongest military, the largest nuclear arsenal, and a seat on the UN Security Council. Yet, according to the Financial Times, Putin is terrified about the independence of Russia's neighbors "not because they pose a military threat to the country's security, but because they pose a political threat to his rule." (FT, 1/19/21)
As the bear market continues and Russia's economy crumbles, we can only assume that Putin will face the oncoming threats using the same methods he has used in the past: graft, coercion, intimidation and, ultimately, military force.
A Familiar Pattern: When the Market Tanks, Russia’s Tanks Rumble
AKA: Does this socionomics stuff really work?
By Matt Lampert, President, Socionomics Institute
In 2007, Russia was a darling among Western investors. Its economy boomed. Its benchmark RTS Index had soared more than 5,000% from its 1998 low. Moscow boasted more billionaires than any city in the world. And Western leaders in business and government marveled at how the country had shed its Cold War image to become a team player on the international stage.
In the face of this widespread euphoria about Russia, Elliott Wave International made a starkly contrarian forecast for a major top in the RTS Index and an end to the country’s amiable international relations. In a two-part report in the November and December 2007 issues of Global Market Perspective, EWI called for a 50%+ decline in Russian stocks and – get this – anticipated that the tidal wave of negative social mood behind such a move would have “serious geostrategic implications.” Specifically, the report forecast that Russia would seek to reclaim territory it lost in the dissolution of the Soviet Union. GMP pinpointed the countries Georgia and Ukraine among the most likely locales for conflict.
Six months later, the RTS Index started its plunge to the bottom of EWI’s target zone. About a third of the way into that steep drop, Russia invaded Georgia.
That was just the first wave down in what has been a 14-year (so far) contracting triangle in the RTS Index.
As the second downward-sloping wave of the pattern unfolded, EWI observed in December 2013 that negative social mood was fueling growing unrest in Ukraine. EWI forecasted that Russia was “particularly unlikely to tolerate much more instability before intervening.”
Russia then intervened just two months later, invading Ukraine and annexing Crimea.
Fast-forward to April 2021. The RTS Index rallied strongly, approaching its highest levels in more than 10 years. But again, EWI saw the potential for trouble. EWI’s analysis indicated “an elevated probability for a near-term acceleration to the downside” in the index, “which would signal an intensification of negative mood in the country and a corresponding intensification in its negative mood expressions.”
The index topped in October and has accelerated to the downside ever since. And correspondingly, Russia is flexing its military muscle yet again.
Do Elliotticians always catch social moves with this kind of specificity? No. But they’ve been red hot on Russia, calling the onset of the bear market and both invasions to date – and ringing alarm bells before tensions rose once again.
Matt Lampert
President, Socionomics Institute
Matt Lampert is the President of the Socionomics Institute. He is a graduate of the University of Cambridge and has spoken about socionomic theory throughout the U.S. and Europe. He is a board member of the Socionomics Foundation and editor-in-chief of the monthly magazine
Areas of research include electoral decision-making, financial markets and popular culture.
