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The Cultural Trends section of the latest issue of The Elliott Wave Financial Forecast, illustrates that when the stock market is on the cusp of downtrend of very high degree there are instances when the political dynamic described in Conquer the Crash (see upper left hand corner) gets out in front of the actual decline. The May issue showed the effect with respect to U.S. President Lyndon Johnson in 1968 and the similarity of his pre-peak plunge to George Bush’s recent popularity nose dive. Bush’s star continues to point in the same direction as his approval rating just dropped another notch to 31%. “In the past 60 years,” Monday’s New York Times states, “only one American president had worse poll ratings 18 months after his election: Richard Nixon at the end of his stint in office.”

In an even more compelling confirmation that social mood is in approximately the same position as it was in 1968, politicians all over Europe are being shaken out of leadership posts by disaffected electorates. This week Tony Blair announced:
I'll Quit Next Year
Tony Blair abandoned his election promise to serve a full third term last night, indicating that he could stand down next summer.
Daily Telegraph, May 8, 2006

On his way out, Blair will follow Germany’s Gerhard Schröder, who was defeated in November, and Silvio Burlusconi, who was ousted by voters in April. Burlesconi was the longest serving premier in postwar Italy. In all three countries, the chaotic political climate is a throwback to the late 1960s when leaders also exited en masse. Here’s the progression:



Italian politics are notoriously tumultuous, but that was especially true in 1968 as Aldo Moro was replaced by Giovanni Leone, who was replaced by Mariano Rumor as the Dow peaked. In Germany, 1968 brought the political hounding of establishment chancellor Kurt Georg Kiesinger for his former membership in the Nazi party. He was finally displaced by socialist Willy Brandt in the wake of the peak in October 1969.  In France, where the president and prime minister share power, the roots of disfavor surrounded a student uprising that forced out Georges Pompidou as prime minister in June 1968 and eventually Charles de Gaulle. De Gaulle resigned the presidency in April 1969, following the defeat of a referendum but “some said this referendum was a self-conscious political suicide committed by de Gaulle after the traumatizing events of May 1968.” As the article at left indicates, Blair’s record low actually breaks the mark established by his 1968 counterpart Harold Wilson. A 1968 issue of Time magazine placed Wilson at “the nadir of his popularity” and said, “Wilson finds himself under fire from almost every direction.” Things got worse after the peak was recorded in December 1968 as Wilson’s party suffered serious mid-term loses in 1969 and Wilson himself was “swept from power on a tide of anti-Labour feeling” in June 1970 as the market reached a temporary low.



Here’s the modern-day version of an almost identical political house cleaning. With Blair’s decision to step aside, the leadership change has already effected three of the four European powers. After the market turns down, it should be a clean sweep. Only France remains, but leaders there appear to have the weakest footing of all. In April, French PM Dominique de Villepin and President Jacques Chirac were hurt by a student uprising that probably be remembered for damaging their as irreparably as the events of May 1968 did the great Charles de Gaulle. Here’s a headline that hints at what the French leaders are up against:
De Villepin Faces Call to Prove Innocence or Quit
Financial Times, May 9 2006 19:31

In a bear market, it’s guilty until proven innocent. For the social forces behind this sentiment see the excerpt from Conquer the Crash in Additional References.

Conquer The Crash
Chapter 27:
Preparing for a Change in Politics
The Elected Leader’s Fortunes
U.S. electoral history electoral history [shows] that when the stock market is rising, reflecting a positive social-mood trend, voters tend to maintain the incumbent leader. When stocks collapse, the leader is thrown out in a landslide or by other means; though the instances are rare, there are no exceptions to this rule. Voters do not appear to care which party is in power at such times; they just throw whomever they perceive to be in charge, and his party, out of power.

National leaders always make things worse for themselves by (1) claiming credit when the economy does well, thereby implying that it’s their fault when it doesn’t, and (2) vowing to enact economy-boosting measures when the economy weakens, thereby supporting the fiction that they can control it, which puts their opponents in a position to claim that those policies failed.

A leader doesn’t control his country’s economy, but the economy mightily controls his image. When the economy contracts, that image suffers, and the voters throw him out. This is true of elected rulers all over the earth. For an instructive case in point, study the fortunes of U.S. president Richard Nixon, who won a second term in a landslide in late 1972 at a major top and was hounded from office less than two years later as the Dow suffered its largest decline since 1937-1938. Or consider George Bush, who enjoyed record presidential approval ratings in 1991 yet lost the election just a year later amidst the deepest slide in S&P companies’ earnings since the 1940s. In Argentina, which recently has suffered financial ruin after a deflationary crash, the president saw his public approval drop from 70 percent to 4.5 percent in just two years. The country then ran through four successive presidents in a matter of weeks. Those voters wanted all the bums thrown out.

If there is a deflationary crash, the incumbent leader of your nation, no matter how popular he is early in his term, will not win re-election if stock prices are much lower on election day. The financial and economic decline during his term and the defeat that follows will not be primarily his fault, though the majority will insist that they are. If the decline is a drawn-out affair, more than one successive leader could suffer defeat at its hands.

The Public, Not the President, Controls the Trend
People who hear me say in speeches that the markets and the economy affect the election of the leader more so than vice versa invariably gasp in incredulity. In the U.S., Republicans say, “How can you say that Ronald Reagan’s conservative policies cannot be credited for the economic improvement of the 1980s, which led to 8 out of 10 years of expansion?” To which I reply, “Then do you also credit Franklin Roosevelt’s liberal policies for the economic improvement of the 1930s, which led to 11 out of 12 years of economic expansion?” (You can switch these lines when a Democrat asks you the question.) Or more poignantly, “Do you credit Adolf Hitler for the dramatic economic upturn in Germany after he assumed power in 1933?”

What is really happening is that these leaders got into power because the people, despairing over their depression, demanded the ouster of the incumbents. The trend turned, and the new leader got the credit. Sometimes, voters at market bottoms do elect leaders with better economic policies. Usually, they don’t.

Conversely, leaders in power during financial collapses are rarely directly at fault. Usually years of mismanagement by others set the stage. The leaders in power at the time, though, always appear inept, because they take actions designed to “help the economy,” which fail, or they decline to take actions and are blamed for fiddling while Rome burns. Regardless of what they do or don’t do, the public blames them and their party and kicks them out.