Additional References
EWFF, October 2005
Listen closely and you can almost hear the hot air of the bull market hissing away across the breadth of society. In the boardroom, schools and the profession of baseball, where steroids and other performance-enhancing substances pumped up the game, a face-the-music mindset is grabbing hold.
EWFF, July 2005
It’s somewhat incongruous to see the horror movies rise to the level of full-fledged industry while many bull market institutions and icons press on to new highs. The bull market sports of baseball and basketball, for instance, are holding up relatively well. Basketball enjoyed a slight uptick in regular season attendance this year, to a new record high, while 2004 brought out a record number of baseball fans, also by a slight margin. But the bear market dike appears ready to burst. League-wide scoring droughts, failures by teams that dominated through the course of the old bull market and player/fan altercations have marred both sports.
Given their troubles, it’s amazing that baseball and basketball still have fans. But there’s a simple socionomics explanation: the Value Line Arithmetic index hit a new all-time high June 17, just as it did in May 1968. This lift in the small-cap stocks was strong enough to produce an uptick in the fortunes of these games, which historically have been extremely sensitive to a rise in social mood. But a quick whiff of the fallout to come as wave 3 in the larger indexes accelerates was visible in Nike stock. In the 1980s and 1990s, Nike moved to the top of the sport shoe industry by placing its shoes on the feet of the great bull market sports heroes. On June 27, it fell a quick 4% even though it surpassed all expectations with a 15% increase in earnings. The reason for the decline? A slight downtick in revenue growth. It should be the first of many. As the bear market descends, a relentless series of unfortunate events will befall Nike, baseball, basketball and the whole bull market sports establishment.
EWFF, December 2004
Squeezing the Juice Out of the Long Ball
What’s the difference between the steroids’ controversy in baseball and the accounting crisis at Fannie Mae? From a socionomics perspective, there is none. The slackening of accounting rules that allowed corporations to pump up their financial statements and the use of performance-enhancing substances by professional baseball players are just separate mediums through which the peak mood of the 1990s and early 2000s “juiced up” the social environment to reflect the end of a 200-year bull market. One key attribute of a fifth wave is that it lacks the underlying strength of the preceding third wave. But what fifth waves fail to produce in substance they make up for in an abundant optimism. Apparently, when it is a fifth wave of Supercycle degree, the positive outlook is so rigorously imposed on society that long-established social institutions such as professional baseball or industries such as the mortgage field stretch conventional standards to allow the achievement of record-high results, or at least the impression of them. As The Elliott Wave Theorist explained with regard to the financial fundamentals in September 1998, one key attribute of the last leg of the great bull market was its ability to get novice, as well as professional observers, to explain away, ignore and deny a long list of financial measures that were clearly weakening in the bull market’s waning days (see Chapter 1 of Conquer the Crash).
A bear market is the path through which historical standards and values are re-established. The first phase of this movement focused on Enron, and the front edge of the next wave is being signaled by a series of events that Bloomberg magazine is calling “Fannie Mae’s Fall From Grace.” Back in 2001, when Fannie Mae was still just below its all-time high, Money magazine tabbed Fannie CEO Franklin Raines “the most confident CEO in America.” Conquer the Crash responded, “His stockholders, clients and mortgage-package investors had better share the feeling, because confidence is the only thing holding up this giant house of cards.” With the Dow Industrials still above 10,000, confidence remains historically high. However, regulators showed that it is clearly teetering when on December 22, they managed to remove Raines from the chairmanship of Fannie Mae.
It is no coincidence that the steroids scandal in baseball also rose to the fore in December. Like many of Fannie Mae’s accounting tricks, widespread steroid use by major league players has been an “open secret” for some time. It is generally thought to date back to the front-end of the bubble era. Observers say they first noticed a suspicious bulge in homers and player physiques in 1995, the year the first bubble stocks appeared and the most manic phase of the long bull market began. In 1998, when the left shoulder of the great peak was formed by a preliminary high for most of the major averages, the Chicago Cubs Sammy Sosa and St. Louis Cardinals Mark McGwire both surpassed Roger Maris’ single-season home run record in an epic bid for that season’s home run crown. McGwire won with 70. In 2000, Major League baseball set the all-time record for total home runs with 5,693, which marked an incredible 71% increase from 1990. In 2001, Barry Bonds broke McGwire’s single-season record with 73 homers. In 2004, he crossed the 700 mark for his career and moved within striking distance of the most venerated record in sports, Hank Aaron’s all-time home run record of 755. But his accomplishments, as well as the integrity of the game, were called into question earlier this month when it was revealed that Bonds had admitted to using steroids (“unknowingly”), during the 2002 season. The admission was a “scales falling from the eyes” moment for the game. Suddenly, the media had to face the fact that Major League baseball looked the other way as Bonds and a host of other bulked-up stars effectively neutered the game’s cherished record book. “baseball’s numbers are sacred. So now, if you can’t believe the numbers, what’s left to believe in?” asks one scribe.
In the same vein as stock “bears” who nevertheless call for a continued market rise in 2005 and those recognizing real estate as a bubble yet call for real estate to remain buoyant, many sports columnists are incensed by the steroid revelations, but say there will be little or no effect on the game in 2005. They continue to track a high level of indifference on the part of fans. At this year’s winter meetings, player salaries again notched higher, and teams report no discernible effect on season ticket sales. “Fans Don’t Care About Steroids,” says one headline. What these writers do not understand is that the overriding force behind baseball’s popularity was the long bull market, and the current indifference is the result of a countertrend rally that is ending. As its influence fades and the bear market returns, the baseball crowds will thin out and the disgust will come pouring out. The effects of a deepening negative social mood will undoubtedly extend onto the field since most players took steroids for the same reasons investors bought stocks: to make money, to mimic one another and, as author Carl Elliott explains, to avoid “the risk of being left behind.” “This may be less about the desire to succeed than the desire to avoid shame and humiliation,” says Elliott. The fear of shame and humiliation is a powerful motivator. But it totally re-orients itself in a bear market. As steroids and other performance-enhancing drugs themselves become a source of shame, not to mention severe punishment, their use will wane. This will probably reduce the size of the players (as forecast in the April 2001 issue of EWT) and home run counts, but it will get the game more in line with its roots, which is what bear markets are all about.
The Elliott Wave Theorist, April 2001
Evidence of a Major Downturn in Social Mood: Plummeting Interest in Ballgames
A Baseball Forecast
In 1985, The Elliott Wave Theorist’s original study on “Pop Culture and the Stock Market” asserted, “Trends in sports reflect the prevailing mood.” The emergence of a bull market produces an escalating energy level that is physically embodied in the organization of athletic competitions. As the rise in social mood progresses, people share the optimism of the time by heading out to the ball park in larger numbers and constructing elaborate events. The leagues and their champions become increasingly sophisticated and revered. Eventually, massive stadiums are constructed to house the widespread public obsession with sports. EWT theorized that a reversal by a dominant bull market sport like baseball could be “an advance indicator of important fundamental events.” In late 1992, EWT put this theory to the test by publishing the following forecast for baseball:
A Top in baseball?
Signs of a turn are there. If you’re an investor, take profits on baseball. If you’re a player, sign a long-term contract. If you’re an owner, sell your club.
In early 1993, we counted a five-wave rise in total baseball ticket sales since 1901 and concluded, “At minimum, baseball faces its largest percentage drop in attendance since it became the national sport.” The wave count from 1993 is displayed at the bottom of page 1 with an updated version showing that total ticket sales collapsed in 1994 then rebounded to a b-wave high. At 73.4 million, the 2000 total is slightly higher than the total for 1993, but it is labeled a bear market rally for several reasons. The key factor is that the implied attendance growth is illusory. First, observe the lack of a new high in the per-team ticket sales at right. The number of tickets sold in the average major league city peaked in 1993, the season following EWT’s forecast. Further, the sales totals shown in these charts represent tickets sold, not actual attendance. Brokers report that demand for seats has plunged. In fact, so many season tickets are not being used that scalpers sell some of the best seats in the house at “60% to 80% below face value.”
Another clue to the major change in the primary trend in baseball’s fortunes is the plunge in television ratings for the All-Star game and World Series. The total number of fans tuning in to baseball’s two most important annual events actually topped the year before baseball’s 1993 attendance peak, the same year as EWT’s forecast. After successfully foreshadowing baseball’s initial decline in ticket sales, TV ratings have continued to contradict a slight new high in total sales with a decline to their lowest level in history. This is a bearish non-confirmation of the new high in total ticket sales. The five-wave pattern of this decade-long trend announces the onset of a major bear market.
An interesting aspect of this call is that it involves both classes of socionomic forecasting. The Wave Principle of Human Social Behavior defined the two types as:
1) predicting trends in social phenomena based upon waves within the phenomena themselves, and
2) predicting economic, political, social, cultural and other trends based upon the wave position of overall social mood such as the stock market.
We identified the 1992/1993 peak by the first method. The second method points to a B-wave high in 2001, coinciding closely with the peak in stock prices. So, the B-wave rally has put EWT’s forecast for a major trend change on track by both socionomic methods.
Two other measures of baseball’s bull market, player contracts and team values, continued to climb with the stock market through the 1990s. Since these are less direct registers of grassroots demand for the game, they have continued higher through wave B, much as the “nifty fifty” stocks made new all-time highs in 1973 despite lower highs in breadth and the inflation-adjusted averages. The chart at left of the top player contracts since 1980 suggests a sharp reversal immediately ahead. Notice the similarity to the run up in tulip bulb prices from 1634 to 1637 on the right. EWT has made very effective use of this simple “investment mania” pattern in recent months. The Texas Rangers added the last point on the chart when they signed shortstop Alex Rodriguez to the richest contract in the history of sports. The $252 million contract maintains a parabolic rise since 1980. Salaries of top players have now outstripped public demand for their services to an extent reminscent of the Internet stock runup of 1999. If the classic pattern holds, the reversal in salaries should be even more drastic than the drop in ticket sales. Based on the full retracement of past manias, a decline below the starting point of $1 million a year should follow.
Bull Market Sports on the Ropes: Expectations vs. Results
As in the stock market, the raised expectations engendered by the preceding bull market have persisted through the first phase of the collapse. Despite waning fan interest, salaries, stadium construction, the value of stadium naming rights and advertising fees continued to increase through 2000. Even new all-time lows in television ratings throughout 2000 could not dent the bullish expectations of participants. The table on the next page shows how elevated official hopes were on the eve of each event. The second headline shows that, in every case, a poor showing took television networks and sports authorities by surprise.
EWT has noted several times over the years that government is “the ultimate crowd.” “It is always acting on the last trend, the one that is already over,” EWT said in 1994. The following excerpt from the March issue of Building Design & Construction shows that the government commitment to the development of new stadiums is so deep that builders regard the spiraling growth in the costs and amenities of modern-day facilities to be a permanent condition.
Sports Projects on the Dole
While building projects in many commercial sectors face uncertain futures, the sports niche is as robust as ever. Fueled by a mix of technology, ebullient fans and government support the momentum of sports construction is like that of the public sector: There is never a recession. Part of the reason is the use of public funds and new taxes and bonds to pay for these projects.
Local and state authorities have taken on enormous financial obligations to preserve the “major league status” that is on the cusp of its biggest devaluation in history. An eventual public fury over the stadium projects is inevitable. As the public thirst for ball games dissipates, funds available for the real dole will be squeezed and many will cry, “What were they thinking?!” At this point, however, most are still blinded by the emotional attachment to the erstwhile bull market. Like governments, TV networks remain institutionally bound to the old trend. Despite losses dating back to the early 1990s on contracts with pro leagues, they continue to make long-term commitments based on false hopes of a quick return to growth. After losing $40 million on the 1998 World Series and suffering through the worst ratings period in the history of baseball, Fox entered into a new contract that will nearly quadruple its yearly payout to the sport! The new contract runs through 2006 and will certainly lose a fortune for Fox.
2001 has produced the first inkling of the potential for a prolonged decline in the popularity of professional sports. In February, the record NBA all-star game ratings plunge joined a 45% decline for football’s Pro Bowl and a 37% drop for the all-star hockey game. Fallout from the developing bear market was so pronounced that the media finally took notice. The first hint of recognition was signaled by headlines like this one from the Detroit Free Press:
Are We Tired Of Sports?
Early Sign Suggest Fans Are Losing Interest
The true “early sign” was the Elliott wave count nine years ago, but now people are noticing the results. The press labeled the trend a “bedeviling, sociological change” and revealed that participation in most team sports fell through the 1990s. After captivating America and verging on “global conquest” at the end of the 1990s, Newsweek disclosed on February 19 that pro basketball “appears to have lost its magic.” CNN Moneyline reports that one-time high-flying financial and technology firms that spent millions acquiring the naming rights to new professional sports facilities would love to get their names off these grand edifices.The problem is that no one wants the naming rights, at least not for the price they paid. An investigation of ticket prices by The Wall Street Journal found “enough to send a chill down the spine of the sports industry. Sports analysts say the industry could be sitting on a time bomb. The main reason fans don’t renew their seats isn’t the price or even the team’s performance but the number of times their tickets go to waste.” An April 13 USA Today story reports that 25 of 30 major league teams lost money last year, and “teams are going deeply in debt to pay [player] salaries.” “baseball is in a golden era right now, but underneath all that is this huge problem,” admitted the game’s commissioner. Everything hinges on attendance and ratings growth that has been waning for a full decade. “It’s insane,” says the general manager of the Cleveland Indians. Well, someone is insane, all right, but is it the fan, or is it the owner who signed the record high contract, or the banker who lent money to the team, or the government body that pledged taxpayers’ millions for a stadium?
Into the Teeth of the Bear
Most sports consultants say fans are not tiring of sports; the prices of tickets and hot dogs just got a little too high. When prices come down, sports industry insiders insist that people will head back to the ballpark. But it does not cost anything to watch the World Series on television or to play baseball and basketball. A more reasonable explanation for the fallen interest is that the bull market in social mood has given way, just as EWT predicted it would at the end of the Grand Supercycle bull market. The result is a reversal of the bull market trend described at the outset of this report. As the bear market emerges, a declining energy level has reduced participation and fan interest.
Eventually, more developed expressions of the long rise will unravel. In addition to the attendance shrinkage that EWT initially called for in 1993, the bear market should produce a retracement in every other aspect of these endeavors. The number of teams, leagues and viewers, the level of salaries and even the physical attributes of players should shrink substantially over the next few years. On and off the field, the games should be characterized by an increasingly rough tone. Player-on-player, fan-on-player, and fan-on-fan violence should continue a rise that has already begun. Formerly silent opponents will come forward to charge that sports are too violent, too commercial, sexist, racist or a corporate leech on communities.
To date, the lost interest in bull market sports and the psychology that surrounds it certainly support our case for an unprecedented downturn in social mood. These changes reveal the immense value of the Wave Principle and the concept of socionomics, which describe the psychology of crowd behavior. As the downturn in social mood accelerates, look for more revelations about the loss of passion on the part of sports fans everywhere.
The Wave Principle of Human Social Behavior (1999)
A Forecast for baseball
I have found parallel trends between many different types of social activities and the stock market. Predicting some social trends might appear frivolous, but to the industry involved, correctly anticipating trend changes would be worth millions of dollars.
Immediately following the 1992 baseball season, The Elliott Wave Theorist published an analysis and forecast for the fortunes of that great American game, along with practical advice for collectors, players and team owners. The following quotes are excerpted from issues of The Elliott Wave Theorist published on the dates listed:
October 30, 1992
A Top in baseball? The first World Series game was held in 1903. This year was the Fibonacci 89th World Series. The emotion surrounding the 88th and 89th World Series games was huge. The 1991 series was widely described as “the best World Series ever.” It brought together two “worst-to-first” teams, a battle of underdogs (who are always popular). Fans were chanting and “tomahawk chopping” like college fraternity lunatics. The games attracted a high 24.0 share of TV viewers. The teams were greeted by throngs totaling nearly a million people at post-series hometown parades. The 1992 series was similarly emotional, particularly in Canada, as the Toronto Blue Jays took on the symbolism of national pride. Indeed, the Atlanta Braves were the only team ever to have been magically groomed for such a setting by a decade of billing as “America’s Team.” It was the first nationalistic World Series ever.
There is reason to believe that baseball players’ salaries, as well as baseball cards and other memorabilia, have just made a “spike top” along with fans’ emotions.
You may recall that our “Popular Culture” Special Report of 1985 concluded that baseball is a bull market sport…. When the first World Series was played in October 1903, the Dow was making a low at 43. It was never lower during another World Series, enjoying an 89-year net uptrend. If stocks are topping in a major way as the Wave Principle argues, so is the uptrend in baseball’s popularity. In the past few years, Hollywood has idolized baseball in Field of Dreams, The Babe and A League of Their Own. The widespread popularity of such sentiment toward a subject often coincides with a peak in interest among the population.
Could baseball be in for a 55-year period of decline in public favor? Signs of a turn are there. If you’re an investor, take profits on baseball cards. If you’re a player, sign a long-term contract. If you’re an owner, sell your club. Kids will soon be trading in their bats for helmets (or hockey pucks, soccer balls, or equipment for a more violent sport yet to come). If you’re a real fan, you’ll still find yourself griping about baseball some time in the 1990s.
Result: A few months later came these dramatic reports of a sudden change of fortune for the prices of baseball cards and their manufacturers’ stocks, both of which collapsed:
THE WALL STREET JOURNAL
January 27, 1993
New York – baseball-card stocks were hit by news that market leader Topps Co. will report its first quarterly loss in more than a decade.
Topps – which experienced strong insider selling last year – sank 31%, to $8.50 from $12.25, on seven times its usual volume.
The announcement sent shares of several companies in the sports-memorabilia business south yesterday. Among them was Marvel Entertainment Group, the comic-book giant that purchased card manufacturer Fleer Corp. last September. Shares of Marvel, which according to analysts gets roughly half its revenue from Fleer, slid $3.25, or 11.5%, to $24.875 on five times its normal volume.
“The speculative bubble has burst in the new cards,” said....
ROCKY MOUNTAIN NEWS
April 7, 1993
SPORTS TRADING CARDS: Market has started to fall apart
The market is crumbling. Manufacturers are laying off employees as their stock tumbles and they cut back on production. Retailers are going out of business. Prices on goods are slashed. Card collecting exploded in popularity in the 1980s and turned into a highly profitable business. Card brands increased from one in the 1970s to 40. Then came the crash of ’92-93. Pro Set filed for Chapter 11 bankruptcy. Topps, the trading card leader, lost 30% of its stock value in one day after it reported an expected quarterly loss.
January 29, 1993
[Elliott Wave International’s] Pete Kendall has just obtained the data on baseball attendance during this century. As you can see by [Figure 17-4], the figures appear to have traced out an exceptional Elliott Wave, ending with the 1992 season. Notice that the 1981 strike brought attendance back to the preceding fourth wave, just as it was scheduled to do. When the data is plotted on semilog scale (not shown), the entire rise from the World War I low in 1916 forms a wedge, which has bearish implications. At minimum, then, baseball faces its largest percentage drop in attendance since it became the national sport. At junctures such as this, it is even appropriate to consider that it may fall far enough out of favor in coming years to cease being the premier national sport.
Result: 1993 was another record-attendance year, as fans bought season tickets on the strength of their overwhelming enjoyment of the previous two years. In 1994, baseball players called a strike. It closed down the season, causing the largest drop in attendance since the beginning of baseball in arithmetic (but not quite in percentage) terms. In 1994, there was no World Series for the first time ever. Fans’ bitterness extended the low turnout into 1995. The following article revealed the immense pressure on the trading-card industry resulting from this change in fortunes:
Was it luck that the players’ strike happened after our forecast? It might have been. However, there are two reasons to think otherwise. First, it is definitely incorrect to presume that the strike was an “outside cause” that struck the baseball industry out of nowhere. I would argue that the strike, which was called by players making multiple millions of dollars who thought they were worth even more, was a consequence of baseball’s affluence, which in turn was a consequence of its popularity. The entire event was internal to baseball and its fortunes, and it occurred right after one could identify five waves up in the attendance figures. Since then, the popularity of baseball has waxed again in tandem with the continuation of the bull market in stocks. However, it still significantly lags its pinnacle of 1991-1993 in terms of emotion, trading card values, television viewership and stadium attendance per team.
In 1996, despite record home-run statistics and a World Series match-up of the American and National leagues’ most popular franchises, attendance was still off 14% from that of 1993, while television ratings for the World Series showed the third lowest percentage viewership ever. In 1997, attendance again remained moderate. In 1998, home-run statistics of several players set all-time records (record home runs are a bull market phenomenon, but that’s another topic), two new teams were added to the leagues (another consequence of affluence typical of tops), the country felt as affluent as ever, stocks made new all-time highs, the economy was in the seventh year of an expansion, and America liked baseball again. This resurgence in the sport’s achievements and popularity is a direct reflection of the resumption of the bull market in stocks after 1994. Despite all that, the 1998 World Series attracted the lowest television viewership ever. The two new teams added to the total turnout, which matched the peak of 1993, but turnout per team has yet to exceed that peak.
Most forecasters would simply extrapolate the multi-decade uptrend into the future. Maybe the uptrend will continue; there is no guarantee that wave 5 has ended; it could subdivide and last decades longer. However, if my thesis is correct that baseball is a bull market sport, and if my wave interpretation is correct that a Grand Supercycle bull market is nearing its end, then baseball’s fortunes are due for a reversal on that basis . Time will tell, but at least you can see that my forecast for a multi-year decline in the popularity and fortunes of baseball is actually that, not a description of present conditions tagged with the title of a forecast.
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