Magical Thinking vs. Practical Thinking
This essay by Peter Kendall originally appeared in The
Elliott Wave Financial Forecast in March 2003.
The practical thinking that dominates in a bull market carries
a “reverence for science.” In a bear market, “magical thinking” prevails.
An article from a recent issue of Time captures the dynamic as it is now
playing out in pop culture:
The past quarter-century of American popular culture was ruled by the
great mega-franchises of science fiction Star Wars, Star
Trek, Independence Day, The Matrix. But lately,
since the turn of the millennium or so, we’ve been dreaming very different
dreams. The stuff of those dreams is fantasy swords and sorcerers, knights
and ladies, magic and unicorns. In 2001, the fantasy double-bill of
Harry Potter and The Lord of the Rings ranked first and second
at the box office, and it’s happening all over again this year. The
business of fantasy has become a multibillion-dollar reality, and science
fiction is starting to feel, well, a little 20th century. Popular culture
is the most sensitive barometer we have to gauge shifts in the national
mood, and it is registering a big one right now. Our fascination with
science fiction reflected a deep collective faith that technology would
lead us to a cyber-utopia of robot butlers serving virtual mai-tais.
A darker, more pessimistic attitude toward technology and the future
has taken hold. The evidence is our new preoccupation with fantasy,
a nostalgic sentimental, magical vision of a medieval age. The future
just isn’t what it used to be and the past seems to be gaining on us.
The reason the future is not what it used to be is that the
bear market mood is quashing it. J.R. R. Tolkien wrote his first book, The
Hobbit, near the bear market low of 1932, and his works became popular
in the United States during the bear market that started in 1966. As the
bear market wore on, his works inspired the popular fantasy game Dungeons
and Dragons. This much higher degree bear market will create even more dragons,
many of which are likely to be real. Conquering them is a matter of maintaining
bullish thought processes, which is actually very different than the common
response of simply staying bullish. It means being guided by reason and
the history of past bear markets rather than fear, anger and hope. The herd
cannot do this, but disciplined students of the Wave Principle and human
nature can.