Stock Market Technician Sees Growing Appetite For Horror Movies

Submitted by Robert Alstead on Thu, 05/11/2006 - 16:00

How are a medieval mathematician, the petals on a daisy, and the length of women's skirts related to scarier frighteners at the box office?In the last few years, we have entered a fertile era for horror movies. Unfortunately, this period will also be accompanied by one of the greatest economic depressions that humankind has ever known and one that could be accompanied by political instability and war.

These are the extraordinary prognostications made by stock market technical analyst Robert Prechter of Elliott Wave International, a man who manages to command considerable respect in the investment community in spite of his extreme predictions.

Prechter elucidates the basis for his beliefs in a provocative, hour-length documentary, History's Hidden Engine, which has been released for free on the web.

The documentary, directed by David Edmond Moore, pulls together enough fascinating mathematics in the form of fibonacci ratio, fractals and patterning in nature, mixed with observations on human behaviour and the psychology of crowds, to give The Da Vinci Code a run for its money.

Prechter is a pioneer of Elliott Wave Theory, a statistical analysis tool that is used to predict, among other things, the direction of markets. Students of Elliott Wave take the view that social mood causes social events like movements in the stock market, reversing the accepted view that the causality is the other way round (i.e. that news drives markets). These movements also occur in repetitive and similar cycles.

Although Elliott Wave theory is a relatively new concept - it was formulated by an accountant Ralph Nelson Elliott during the Great Depression era - its mathematical basis is rooted in the sequence of numbers discovered by medieval mathematician Leonardo Fibonacci when trying to work out how many rabbits a pair of rabbits and its offspring would breed over a period of a year. The Fibonacci Ratio, or Golden Ratio, turns up throughout nature from the petals on a daisy to classic architecture and form (such as the work of Leonordo DaVinci), from atomic particles to spiraling galaxies. It gives shape and order to the natural world and by extension reflects man's own progress and productivity. Hence Elliott Wave analysts use fibonacci ratio and wave theory to try and predict turning points in markets.

As History's Hidden Engine shows, Prechter has taken his studies further with pioneering studies in what he calls Socionomics. This looks at the social trends and patterns of human cultural events that characterise stages in the economic life cycle. He suggests that by combining studies in cultural trends and mass psychology with wave theory you can ascertain more accurately where markets are in their cycles. The doc suggests that because markets chart a pattern of repetitions, they offer a degree of predictability.

Down markets and recessions bring about negative emotions as the economy retracts and booms bring out our positive emotions as people become optimistic and productive. Presidents get turfed out of office when the economy is tanking, wars flare up, fashion and cultural norms turn more conservative (skirts are longer). As social mood turns negative anger and fear dominate, and horror films seem to thrive.

In contrast, the upbeat social mood during boom times is reflected in the lightness and frothiness of our music, fashion gets more risque, skirts get shorter (the mini skirt apparently marks a peak in the stock market), presidents are popular, and our entertainment diet turns toward lighter film fare - Disney, the ultimate in light entertainment, has always thrived in these years.

Generally speaking, musicals, adventures and comedies should fare better in boom times. "There are exceptions. For example, the Rocky Horror Picture Show is a musical, but everything about it, from the shlockiness to the sleaziness to the campiness, is of bear market style," Prechter points out in an email.

So where are we now and what kind of films will we be making in future? Prechter has said that we are in the early stages of a long-term bear market that is taking years to unfold. It began with the peak in early 2000 of stockmarkets and would end (he said in his book Conquer the Crash: You Can Survive and Prosper In A Deflationary Depression) with a collapse of the Dow Jones Industrial Average, to less than 10% of where it is now in coming years.

He views our current appetite for debt, the property boom/bubble the world over, as an echo of the dot com bubble that will burst as negative social mood takes hold in earnest. Bad news all around, except we should see some more intense, shocking horror movies as filmmakers tap a large well of negative emotion..

"All the popular, groundbreaking horror movies were produced in bear markets - Dracula, Frankenstein, King Kong, The Mummy, Dr Jeckyl and Mr Hyde, all those were produced from 1931 to 1933, two short years during which time the Dow Jones Industrial Average was plummeting," says Prechter in History's Hidden Engine.

"You didn't have a situation like that ... until the late 1960s and then you had Halloween, Night of the Living Dead and the Texas Chain Saw Massacre, and all of these groundbreaking horror movies that were popular and you don't see that sort of thing in bull markets."

The fact that some of the most internationally successful horror films of recent times (such as The Ring (Ringu) series) have been coming out of Japan would seem to back this up. Japan has been stuck in a psychologically wearing bout of deflation for many years, a situation which occurs when money's purchasing power strengthens, and the onerousness of debt rises. Prechter has said that he expects that the crash in stock markets will be accompanied by a period of global economic deflation. As this takes hold it will cause suffering and socio-political instability.

He believes that you can already see this in the movies being produced. Writing by email he says: "We are already in a roaring renaissance for cutting-edge horror movies. The theme in the '30s was monsters; in the '70s it was zombies and slashers; now it's torture: Saw I and II, Hostel, The Hills Have Eyes, The Devil's Rejects, Wolf Creek, etc. We are deep in a bear market psychologically, which also shows up in the President's low popularity. This is not unusual in bear market rallies, such as 1968 and now."

One problem, as one interviewee suggests in History's Hidden Engine, is that in complex, chaotic systems, it's easy to find patterns in data - in this case, films - that neatly fit a thesis. But then commentators in every sphere of human endeavour do this every day.

Prechter has been widely praised for his work with Elliott Wave theory and social trends. However, critics in the investment world suggest that if you had followed his advice in Conquer the Crash to get into cash, you would have missed out on the booms in property, commodities and the stockmarket of the last few years. Prechter argues that the Dow Jones only recently rose above the level that it was at when his book was published and "it should be back below there pretty quickly."

Prechter says that last November he projected a stock market peak within a few trading days of 6 May 2006.

He adds, by email, that his main goal has been to ensure people's financial security and safety. "This is the biggest bubble ever," he says. "I think people will be kissing the cash they have when all these "investments" fall apart. The real opportunity is coming later, and if you have cash you can buy 10 times the stock if that's what you really want to do with your money. But as we all know, at the bottom no one will want the stuff."

After the surge in stockmarkets since October 2002, few now believe that Prechter's dire predictions of economic armageddon will take place. But the situation now may be similar to the height of the dot com bubble at the turn of the millennium where it seemed the good times would never end. As History's Hidden Engine shows, we could be blithely grazing like a herd of zebra at a watering hole when we should be at our most alert for dangers.

So the next time you see a really chilling movie it might be because we have reason, beyond the cinema, to be very afraid. The silver lining is that horror filmmakers can look forward to doing the best business at the box office if all hell breaks loose.

Watch History's Hidden Engine

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