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"The Waves of War"

What can the trend in stocks tell you about future military conflict? A lot.

by Vadim Pokhlebkin
Updated: October 05, 2016

Socionomics postulates that bull and bear markets in stocks reflect the overall mood (optimistic or pessimistic) of the society. Socionomists call it “social mood.”

It’s a fascinating premise, and one with far-reaching implications. For example, could you look at the stock market of a country in South Asia and trace any connection -- and maybe even make a forecast -- for military conflicts in the same region?

Turns out, yes.

Learn more in this excerpt from the new, October issue of our monthly Asian-Pacific Financial Forecast.

“The Waves of War”
October 2016 Asian-Pacific Financial Forecast, excerpt
Edited by Mark Galasiewski

Eight years ago, our October 2008 [Asian-Pacific Financial Forecast] posited that the Karachi Stock Exchange (KSE) 100 Index provides a good proxy for the social mood in Islamic Central Asia.

Based on that assumption, we showed that fluctuations in the KSE-100 held great significance for the conflict in neighboring Afghanistan. At that time, the KSE-100 had begun a correction from its 2008 high, which led us to forecast that foreign military fatalities in Afghanistan would continue to increase (see chart; Elliott wave labels reserved for The Asian-Pacific Financial Forecast subscribers -- Ed.).

The [KSE] index ultimately fell by 70%; social mood in the nation worsened in tandem; and foreign military fatalities in the nation subsequently surged.

One year later, our October 2009 [Asian-Pacific Financial Forecast] identified a developing impulsive advance in the KSE-100 and forecasted that the violence would eventually subside as the mood in the region improved. We wrote:

“Fatalities may continue to rise for a while, especially if the United States decides to intervene heavily in the region. But if it does, it will have only proved yet again the socionomic hypothesis that government tends to react to trends only after they have already passed their peaks.” (APFF, Sep. 25, 2009)

That is, even though the mood in the region had begun to improve -- and therefore might otherwise lead naturally to greater social stability -- we recognized that there was a good chance that the U.S. government would still react to the negative mood that lingered in the wake of the 2009 low.

As it turned out, two months later, in late November 2009, U.S. President Barack Obama announced a troop surge that ultimately doubled the number of U.S. soldiers stationed in Afghanistan compared with the number when his presidency began in early 2009.

Foreign military fatalities peaked seven months later, in June 2010. As [the big rally] up from 2012 in the KSE-100 gathered steam, foreign military fatalities began to decrease, repeating a pattern seen during the previous [rallies] in the index from 2001 to 2005. In the final days of 2014, NATO formally ended its 13-year combat operations in Afghanistan, about a month before the end of [the big rally].

Conventional observers might say that the increased presence of foreign troops in Afghanistan brought stability to the region (allowing stock prices to rise, for example). But the socionomic interpretation is that it was actually the improving mood in the region that ultimately influenced foreign leaders to reduce the number of troops.

The big picture is this: The chart shows a huge bull market from 2001 to the present interrupted by a large bear market in its middle. It makes complete sense from a socionomic perspective that the greatest violence against foreign troops in the region erupted in the wake of that bear market.

(Editor's note: What follows in the October 2016 Asian-Pacific Financial Forecast is a forecast for what's next in the region's violent conflicts, based on the current and expected trends in the KSE Index.)

Get ahead of the trends in Asia with Asian-Pacific Financial Forecast

The Asian-Pacific Financial Forecast provides the world’s most forward-thinking big-picture perspective of Asian-Pacific markets. Editor Mark Galasiewski understands the vitality of Asian, Indian and Australian markets and gives you the analysis you need to keep your finger on the pulse of one of the most exciting regions on the globe.

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