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The “change,” as this Bloomberg article and a slew of others on the legacy of 9/11 make clear, is with us still. Thanks to the countertrend bear market rally, there are some key differences between now and the atmosphere in the immediate wake of the World Trade Center and Pentagon attacks. For one thing, as the end of the great second wave peak in 2006, has been accompanied by a willingness to come to terms with the disaster. Remember what happened in the aftermath of the tragedy itself, images of the Trade Center explosion and collapse underwent a society-wide ban. The full length feature film, World Trade Center (directed by Oliver Stone and starring Nicolas Cage), shows the curtain on that tragic time are being temporarily drawn back. 

Of course it’s only a bear market rally. Thus the recriminatory, bear market vibe in another “docudrama,” The Path to 9/11, which we discussed yesterday. But here again, we can see the mixture of bull and bear forces as the “fictionalized” aspects of the film that most angered Bill Clinton are reportedly being edited out. Another possibility is that the programs, scheduled for Sunday and Monday, will be cancelled altogether. Of course, trading one bear market practice, censorship, for another, criticism, is probably about what we should expect in the switch from a second wave rally to a powerful third wave decline. Another sign of the transition is this quote from the shows producer: “Starting with The Reagans, everything is now political. It's become so divisive and nasty. It's very sad.” The Reagans was a CBS miniseries that was widely criticized as an unbalanced and inaccurate depiction of Ronald Reagan. It came out in 2003, when the bearish ramifications of the first leg of the bear market were still dominant. As yesterday’s entry reveals, the same bearish impulse is manifesting itself now. The “fear factor” covered at left is another manifestation that suggests the bullish aura of the 1990s is nowhere in sight.  It wasn't caused by the events of 9/11 as the article suggests. It's a result of the bear market mood that actually produced the escalating cycle of war and terror. As the article notes, it's likely to stay awhile, but ultimately good old "feeling of invulnerability," also known as a bull market, will return. 

March 2003, The Elliott Wave Theorist
Probably 98 percent of investors think that the situation regarding Iraq is vitally important for the trend of the stock market (though they have no idea in which direction). That’s why I was pleasantly surprised to read these comments in The Wall Street Journal (3/3/03, p.C1), which almost always quotes conventional views: “…investors should spend at least as much time studying the history of stock bubbles as they do worrying about military operations in Iraq.” This conclusion, reported by E.S. Browning, apparently resulted from a comment by Boston money manager Jeremy Grantham, who (to my greater surprise) said, “In terms of the long term, what the market is worth and where it will end up aren’t about Iraq and aren’t about terrorism. It is about long-term bubbles and long-term spending cycles and long-term optimism giving way to long-term pessimism.” That is precisely the message that Elliott Wave International has consistently sent, from At the Crest of the Tidal Wave (1995) to The Wave Principle of Human Social Behavior (1999) to View from the Top (1997-2000) to Conquer the Crash (2002), not to mention our studies on Enron and terrorism as related to actual market behavior. The market is way ahead of major events because the social mood changes that move the markets also spur decisions that later show up as actions. That’s all there is to it, but that’s a lot.

April 2003, EWFF
The fourth wave sets the stage for the ultimate reversal.”
—The Wave Principle of Human Social Behavior

On September 11, 2001, The Elliott Wave Theorist pointed to the destruction of the World Trade Center and the re-emergence of terrorism as an example of how the negative social manifestations of a fourth wave foreshadow more potent destructive forces that will dominate in the next bear market of one higher degree. “Social mood repeatedly traces out five waves up followed by three waves down. The negative themes in ‘wave four’ within the ‘five waves up’ presage those that will dominate, more dramatically and on a much bigger scale, in the ensuing ‘three waves down.’” After terrorism’s birth as a weapon of political manipulation during Cycle IV (1966-1982), it receded in the 1980s and all but disappeared from public view as Cycle V reached its peak in early 2000. It then re-appeared on a bigger scale when the bear market reached maturity in September 2001.

Fourth waves have also shown that they serve as windows into the nature and scope of wars that resurface in a more virulent form at higher degree downturns. The chart [click to view] shows how the fourth waves of the late ‘teens and 1959-1962 presaged the conflicts that followed the completion of fifth waves in 1929 and 1966. The U.S. entered World War I in 1917 and fought in Europe for 18 months during a fourth wave of Cycle degree. For the U.S., this engagement was just a warm-up for World War II, which also started in Europe before spreading to much more of the globe. Compared to WW I, the U.S. involvement lasted more than twice as long and cost several times as much in lives and resources. In 1962, the Cuban missile crisis pitted the U.S. against communism at the end of a fourth wave of Primary degree. The showdown was a precursor to the Vietnam War, a more sustained effort to contain communism that lasted through the end of Cycle IV in 1974.

In keeping with this pattern, the first Persian Gulf War, which erupted in Primary wave 4 (see Value Line inset on chart), presaged the Gulf War that has erupted in the ensuing major bear market. Currently, it is not expected to last much longer than its predecessor. But the level of divisiveness surrounding the latest conflict, the terrorism that precipitated it and the extent of the U.S. incursion onto foreign soil already suggest that the endeavor will last longer and be far more geopolitically complex than its predecessor.

September 11, 2006, The Elliott Wave Theorist
Forecasting Styles of Social Events
Here is another esoteric point but one of great value. A section on “Nuances” in Chapter 15 of HSB explains that negative social themes due to appear in any approaching bear market first express themselves in milder form in the preceding fourth wave of one lesser degree. Stop for a minute until you get this idea. Here is a more detailed explanation: Social mood repeatedly traces out five waves up followed by three waves down. The negative themes in “wave four” within the “fives waves up” presage those that will dominate, more dramatically and on a much bigger scale, in the ensuing “three waves down.”

This is true of the styles of cultural trends. For example, Psycho came out in 1962, at the end of a fourth wave correction of Primary degree. In the larger bear market of 1966-1982, slasher films (the Halloween and Friday the 13th series) were a dominant theme.

It is also true of the character of social events. In an earlier fourth wave from 1916 to 1921, collectivists took over Russia. In the larger fourth wave that followed, from 1929 to 1949, collectivists took over nearly half of the earth’s population, in Germany, Italy, Eastern Europe and China.

In the current case, the most recent fourth wave of Cycle degree or higher took place from 1966 to 1982, roughly, “the ’70s.” Aside from a slew of terrorist incidents in the 1910s, a decade dominated by a long bear market in stocks, the idea of “terrorism” as a social force began with the 1966-1982 bear market. A 10-volume chronology of American social history over the last 100 years (American Decades, Manly Inc.) lists no acts of terrorism in the 1920s, 1930s, 1940s, 1950s or the 1960s. In early 1970, when the Dow was in year four and the Value Line Composite in year two of a Cycle-degree bear market, the age of terrorism began. An Arab terrorist strike killed one person and injured 23 in Munich. On February 21, 1970, another group of suspected Arabian terrorists hijacked a Swissair flight and crashed it. On September 6-9, 1970, Palestinian terrorists hijacked five planes and blew up three. Unlike the earlier period of “scattered terrorist bombings” in the 1910s, this era was distinguished by the frequency, extent and organization behind the attacks. As the bear market continued, the events grew in size and complexity. The increasing sophistication of terrorist tactics and their rising political power is revealed by the progression from the scattered strikes in 1970 to the PLO raid on the Olympic Village in Munich in 1972 and eventually to a state-sponsored takeover of the U.S. embassy in Iran in 1979. The worst of it ended approximately when the bear market did, as Iran finally released U.S. hostages in January 1981. In those first terrorist acts committed against the United States, we caught a glimpse of the style of conflicts that we would have to endure when the bear market of next bigger size arrived, which it certainly has.

Neither is this point made only in retrospect. Page 435 of At the Crest lists 43 speculations as to specific social actions that will take place during Grand Supercycle wave (. Several of them have already come to pass. One of them reads,

“Foreigners will commit terrorist acts on U.S. soil.”

Here is a summary of today’s event, which truly is “more dramatic and on much bigger scale” than those that occurred during the previous fourth wave of the 1970s:

New York, Sept. 11 (Bloomberg) The attacks on the World
Trade Center and Pentagon today are the worst acts of terrorism
ever on U.S. soil and change the scope of foreign policy, experts
say.
Never before has a large-scale terrorist attack on the U.S.
been coordinated successfully in more than one U.S. city. At this
point, no organization has taken responsibility.
“It’s just an attack of extraordinarily sophisticated
planning,’’ said Michael R. Fischbach, a professor of history
specializing in the Middle East at Randolph-Macon College in
Ashland, Virginia. “The world that we know has now changed.”
“Americans’ whole attitude about daily life, about foreign
policy will be forever changed,’’ Fischbach said.

“The world that we know has changed” is a correct statement, but it did not change “now.” It changed between January 14 and March 24, 2000, a two-month period during which the three major U.S. stock indexes signaled the end of a Grand Supercycle uptrend that had been in force for 216 years. We are only now beginning to feel the lagging results of that change.

The 1966-1982 period had many other unfortunate characteristics that we will see again to a larger extent in the current bear market. However, the “preceding fourth wave” at Grand Supercycle degree actually refers to 1929-1949. As the Grand Supercycle bear market pattern unfolds over the next few generations, eventually it will bring on the kinds of conflicts that ruled that correction.

Do you recognize the value of this information? Most people understandably fret over whether or not an action is “a one-time event” and speculate on whether “the worst is over” without any idea of how to answer these questions. Socionomics can answer them, and it does. Right now, we can say with confidence, we are at the beginning of a long period of social unrest, and while it will wax and wane with the waves, overall it will intensify. The best time to prepare was two years ago, but it is not too late to do so now.