Group Process and Stock Markets: 2002 to 2009

Article excerpt


The purpose of this article is to explain the course of stock markets since October 2002 as part of a group process. First the theoretical approach will be presented. Then follows the application of this approach to stock markets.

My approach of explaining stock markets has two particularities. First I do not care much about economic facts but instead the focus lies more on a higher meta level, namely on social mood. Cyclical changes in the course of stock market prices are explained as the result of a cycle of social mood. Social mood is considered to alternate between a manic and a depressive mood. The word "social" means that this alternation is a mass psychological one. Virtually nobody can escape it. During a manic mood investors and managers feel strong and invincible. They are ready to take high risks and overlook negative economic news and feel enthusiastic on positive ones. Consequently a steady flow of capital pours into stock markets and the economy. The contrary happens when the mood turns negative. Now confidence and strength disappear, investors and managers become anxious and want their money back. Social mood determines the overall trend in stock markets and in the economy.

Now let's look at the second part of this approach. In accordance with a general psychohistorical approach1 and in agreement with findings from brain neurology2 and pre- and perinatal psychology,3 people are thought to consist of different aspects of their personalities which can be unconscious and even dissociated. One of these aspects is the conscious reasonable main personality which is connected with the speech center in the brain and which can express itself explicitly verbally. The other is an immature personality which is unconscious and which I call alter ego. Since it is not connected with the speech center in the brain, it cannot express itself explicitly, verbally, but only implicitly. Its influence can be seen in sudden mood changes in stock markets.

Traumatic memories of feelings of anxiety, rage, shame and guilt stemming from traumatic experiences mainly from the early lifetime of an individual "are likely closely related to a lower brain center called the amygdala which is present in both hemisphere. The amygdala is inhibited by a high-level cortical center, the orbital frontal lobe."4 LeDoux has shown that fear responses involve largely three brain structures: the orbital frontal cortex, the hippocampus, and the amygdala. When trauma occurs, essentially two types of memories are laid down - one in the amygdala and one in the hippocampus. The memories in the amygdala are called 'implicit memories' because they are beyond our consciousness. Interestingly, the amygdala not only retains a covert memory of the trauma but is connected to the autonomic nervous system and is capable of evoking the adrenaline-mediated 'flight or fight' response. A part of this response is the release of adrenalin, which comes back to the amygdala and acts to reinforce the traumatic memory. The amygdala also stimulates the release of the stress hormone Cortisol. The hippocampus, a structure physically near to the amygdala, helps to form long-term memories and is associated with conscious or explicit memories. Both the orbital frontal cortex and the hippocampus tend to try to calm the amygdala. The hippocampus tries to reduce the release of Cortisol. When the amygdala cannot be calmed but rather overpowers the other centers, the person is likely to enter a state of panic. In this state, Cortisol release continues; over time, this can cause damage and even physical shrinkage to the hippocampus.5

From this we can conclude the more traumatic the early lifetime of a person the weaker the brain structures are which inhibit the amygdala and the more the amygdala is able to overpower other brain centers and induce panic and other traumatic feelings. If we transfer this to the psychoanalytic concept of conscious and dissociated personality aspects, we can expect that the strength of the alter ego correlates with the physiological state of the amygdala in relation to the other brain centers and with the amount of trauma a person has experienced during his lifetime. …