Pete Kendall's Socio Times: A Socionomic Commentary

June 9, 2006
I Saw a Deadhead Sticker on a Bentley
Hedgestock was a chance for hedge fund managers and the big banks that love them to get together north of London, listen to a little Pete Townshend and let their hair down. This week, on spacious lawns surrounding a turreted, gargoyle-encrusted mansion north of London, thousands of hedge fund managers and the bankers and lawyers who love them gathered for their own alternative festival, called Hedgestock.

Billed as a gathering place for the misunderstood, sometimes unloved but highly successful facet of the finance industry, Hedgestock aimed to marry the ideals, music and fashion of the 1960's with a networking event for the hedge fund world. The Who, who played at Woodstock, headlined Hedgestock, and the band's guitarist, Pete Townshend, now 61 years old, did, in fact, do his trademark windmill guitar moves.

Still, isn't there something just a little cringe-worthy about a bunch of incredibly wealthy people appropriating the trappings of a generation whose values were nearly the opposite? When the question was posed to hedge fund managers attending the event, they had two words: lighten up. "That's the funny part," said a [hedge fund] vice president.
The New York Times

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'Sock It To Me' Time For Hedge Fund Managers
By: Pete Kendall, June 11, 2006

"It's not strange, it's perfect."
EWFF Short Term Update

Hi Pete, great site! Check this out.
Just as Woodstock in August 1969, along with Altamount just afterword, wrapped up the peace and love era of the 60's, so "Hedgestock" stands as today's high watermark of the bull market. 
--John Fox 
peace love“Wrapped” is right. Hedgestock may stands as the psychedelic bow on the top of an early Christmas present for the bears. As we have stated many times, it’s not advisable to make financial forecasts on the basis of social trends (don’t try this at home), but we thought this event was important enough to alert subscribers of The Elliott Wave Financial Short Term Update on Monday. Here’s what we wrote:

Pardon the social trend cut away, but this item cannot wait for the next issue of The Elliott Wave Financial Forecast. The timing may be significant as page 4 of this month’s issue reveals that a duplication of “the collective social experience of 1968” is not to be taken lightly: “The extra-market phenomena are not the basis of our forecast, but they provide powerful confirmation that our wave interpretation is correct.” With this in mind, the following story about the hedge fund community’s harmonic convergence with “peace” and “love” sentiments of Woodstock could be very significant:
Hedge Funds Jump On Hippie Bandwagon
This is the dawning of the age of hedge funds, and, at last, they are about to have their Woodstock. Even The Who are showing up.

It may not quite be three days of peace and music, but next Wednesday and Thursday, thousands of hedge fund managers, investors and employees will make the pilgrimage half an hour north of London to attend Hedgestock, the ‘new-age networking event for the hedge fund community.’

The festival features not only Roger Daltrey and Pete Townshend headlining what the organisers have dubbed a ‘kick-asset’ concert, but also polo and poker tournaments, and ranks of retro-hippie VW Camper Vans, customised and sold starting at £10,000 a time.

The idea of them joining a love-in with deliberate echoes of the seminal event of the 1960s counter-culture might seem curious, if not downright comical.”
Financial Times, June 5, 2006

Curious is not the right word for it as it implies there is something novel about hedge fund managers’ dressing up like hippies and traveling in VW buses en masse to a revival of the great musical love-in that took place in Woodstock, New York in the aftermath of the Dow’s December 1968 peak. At this point, we have seen so many striking parallels to 1968 that it’s not strange; it’s perfect. It means hedge funds managers who have themselves been carried aloft by the liquidity bubble of the mid-2000s (see panel in the bottom left hand corner of the “all-the-same-markets” chart on page 2 of this month’s issue) may well be away from their desks pretending to be hippies when the front edge of the most serious financial storm of their investment careers blows in.

As many as 4500 will pay 500 pounds each to attend. The Who is the perfect band for the occasion because some of the hits the group will play are the same ones that launched them to stardom around a similar secondary peak in 1968. Late 1968/1969 is when The Who completed its transition from a “bubblegum” to a “more complex and provocative” sound. The play list may well includes “Dr. Jekyll and Mister Hyde,” which came out in September 1968 [on an album called Magic Bus], a few weeks before the Dow Industrials, and went on to become one of the band's “most-often performed songs. One can almost see the assembled fund managers mouthing the lyrics:

“The money I earn I never see
In all things I do he interferes
All I know is trouble as soon as he appears

Mister Hyde, Mister Hyde, Mister Hyde
Mister Hy-y-y-y-yde, Hy-y-y-y-yde

When I drink my potion my character changes
My whole mind and body rearranges
This strange transformation takes place in me”

Another sign of the “transformation” is that the same tension between the communal sentiments of Woodstock, or in this case “Hedgestock,” and the negative mood manifestations of a powerful and still emerging bear market in social mood are evident in the simultaneous return of another cultural lightning rod from 1968/1969, the My Lai massacre. For more on the event that’s been labeled “eerily similar” by the media, see the discussion at Sociotimes.com. 

And here’s how yesterday’s New York Times says the action in the markets came out:
Down Day Caps Worst Week of the Year

As stocks were melting down, the Who’s hedge fund buddies were probably singing: “You better run, run, run (Pack your bags and go)” (another number from the Magic Bus). Gold, silver, and one emerging market after another also dropped to new lows. As they did, one of the financial world’s dirtiest little secrets was breaking into the light of the new trend. This is the realization that rather than being a “hedge” against anything, hedge funds may well be the most optimistic bet on rising asset prices in history. This truth can now being told because recognition of the fundamentals happens in third wave declines. 

Here’s how Reuters describes a typical day at Hedgestock: bullshot cocktails, belly dancing, laser shooting, wall climbing, “more deafening music during the lunch break” and champagne and Pimms in the early evening. But even as they partied through one of the most brutal market weeks in recent history a new era of scrutiny and de-leveraging dawned: “Because trading volumes are often much thinner in emerging markets than in more-developed countries, some market observers believe that hedge funds' actions can have an outsize impact on prices,” says yesterday Wall Street Journal. “Many hedge funds now may be exiting out of fear that bigger losses would put more pressure on them, in part because they borrowed money to establish these positions.” For our take more on the next phase of “hedge fund hysteria” see the entry from June 2.

Any sociologists will tell you that the hippie era was a rebellion against the conservative social norms of the 1950s and early 1960s. These years also constituted one of the history’s great bull markets in social mood. Still, of all the hedge fund managers interviewed on the festivities, we read of just one person who seemed to at least sense that there was, in fact, something “little cringe-worthy” about thousands of financial professionals re-enacting the "turn on, tune in, and drop out" bear market ambitions of the late 1960s. "It's kinda strange, like watching a car crash ... I don't know why its happening, why people are doing it," said a “U.S.-based hedge fund source” who refused to give his name.

Socionomics reveals the answer: It’s happening because we are at a peak in social mood. At such times, confidence is reins supreme. Or as one article put it, “The conference agenda reflects the bravura of the hedge fund industry.” But at the biggest tops of all, it goes past fearlessness to an almost willful recklessness. The mood induces such a sense of control and belief in the uptrend that participants take things a step further. In this case, they identify with a “counter-culture” ethos and party for days on end with their clients in the face of a now mounting global aversion to risk. It appears to be one more audacious aspect of a great peak.

”Hedgestock” reminds us of what happened on September 16, 1968. That’s the night Richard Nixon went on the TV show Laugh-In and delivered one the most celebrated punchlines of the era, “Sock it to me.” It should not surprise to us that the line was delivered within weeks of the December 1968 peak in the Dow Jones Industrial Average. Or that by the end of the bear market that Nixon was unwittingly announcing, social mood would, in fact, sock it to Nixon. It was funny, or at least it got lots of laughs. Nixon agreed to deliver the line because it made him seem hip and trendy, which was no small feat. Since he won by just a million votes, some say it may have help him win the election. It certainly made him more electable. To hear his plaintiff “sock it to me?” click here. In retrospect, it’s still funny, but for totally different reasons than it was at the time.

“Sock it to me” means exactly what it sounds like it means. It was generally immediately followed by a bucket of water, an avalanche of Ping-Pong balls or a custard pie in the face of the person who uttered it. An issue of a 1968 copy of the Saturday Review mentions that, in the novel The Grapes of Wrath (1939), a used car salesman uses the phrase "sock it to 'em" to unmistakably mean equally in context both, "to apply ultimate sales pressure" and "to screw." So, in 1968, the culture was loudly proclaiming “screw me.” Thanks to the uproariously giddy nature of the times, this was absolutely hilarious. This appears to be some kind of collective tension relieving device, an unconscious human response to the uh-oh effect, which is another aspect of really big peaks. According to the uh-oh effect some see the writing on the wall, but their warnings are never heeded. It’s so much easier and consistent with the mode of the times to laugh them off.

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More news on hedgestock from The Sunday Times.
Posted by: Thierry Laduguie
June 11, 2006 07:35 AM

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