Crowd Behaviour

Sigmund Freud's theory on crowd behaviour suggested that human behaviour, complex as it is, changes radically when people are in crowds.

In crowds, the human unconscious mind is unlocked, complex emotions are rarer and replaced with more simplistic primitive levels of expression. On a sinister level this behaviour can spiral into acts of insane depravity. In short, Freud believed that crowds on their own can be dangerous and he was wary of them. (This probably explains why there are strict laws in the UK concerning the right of assembly). But there is a flip-side to everything. Crowd or herd behaviour can also be channelled to positive ends, such as crowd funding worthwhile causes or boosting stagnating consumption to raise profits and create employment. 

This maybe the strategy behind “black Friday” and “cyber Monday”, to tap into the primal behaviour of the crowds with the aim of boosting consumption. Freud was spot on about the primitive levels of expression from the crowd, we certainly saw a lot of that with fights breaking out over a toy doll, television, cut price coffee machines etc. “I have never see anything like this before, said one police officer. “People were behaving like animals,” said one shopper. “I picked up a dyson vacuum cleaner”, said one lady, then added, “I don't need it...I just saw everyone running and grabbing items so I just grabbed this one.”

So that is strategy behind these mind control “events,” and as we saw, the crowds did behave in a “sheep like way”. But from an economic point of view, did the strategy work?

Well, if we look at the latest data, it still doesn't look good.

Regretfully, the latest holiday retail figures aren't good. The 11 percent decline in black Friday sales in the US is worrying. The data comes from the National Retail Federation poll of over 4,000 consumers, asking them how much they spend. It hasn’t been much of a predictor of actual retail sales in the past.

However, some argue that the poll may not be that accurate, “the poll suffers from the problem that the consumer may well not even know what they have spent”, according to market watch. “I would venture a guess that half of the people that they spoke to could not accurately report within $50 exactly how much they spent over the weekend,” said Stephen Stanley, chief economist of Amherst Pierpont Securities. That might be true in a boom time, but when money is tight that might not be so. In any case, it is difficult to call, as sometimes shoppers might be in a trance like state (crowd behaviour mode), buying without even knowing why, or how much they have spent.

There are other figures available. Based on customer traffic, ShopperTrak projected a 0.5% sales decline on Thanksgiving and Black Friday. That’s worse than the 1% gain projected in the Black Friday weekend of 2013.

IBM’s measurement of online sales showed a 14.3% gain for Thanksgiving and a 9.5% gain on Black Friday. Still, the same measure showed a 19.7% gain for Thanksgiving 2013 and an 18.9% advance for Black Friday 2013.

However, apparently Black Friday (or Thanksgiving Thursday) isn’t considered to be the most buoyant shopping day of the year. There are still seven of the top ten days still left, said ShopperTrak.

But if Black Friday is an indication of things to come then it is still a cause for concern, with the trends showing a decline from 2013 figures.

“My sense is that retailers might have overestimated the state of the consumer”, said Stanley. “Many households are better off than they were a year ago and may splurge a little more than they did last year, but we still live in very sober times, where people do not have a high level of comfort about the medium- and long-term outlook.”

Over to Europe, still no positive data coming out from the old continent. Italy's unemployment unexpectedly rose above 13 percent, setting a record as the country's business refrain from hiring in the longest recession since World War II according to Reuters.

Over to Spain there was a massive anti-government austerity march on Saturday, estimate put at around 250,000 people. Over 100 different organisations were involved in the march, which saw protesters chanting: “It is not a government, it is a Mafia.”

It was the culmination of a week of action against ministers’ pandering to European Union fiscal rules, which have dictated an austerity policy aimed at slashing the level of government deficit to 3 per cent by 2016.

The country’s authorities have been trying to reduce the amount of public services, attempting to privatise healthcare.

Europe is in a triple dip recession (depression) in certain areas and all hopes are on the EU kick-start economic plan, which was announced last week. The markets await more news on the 300 billion euro stimulus plan, which entails direct injections of investments into strategic areas of the bloc's economy. In the words of Jean-Claude Juncker, the president of the European Commission, “EU is facing its “last chance.”

Let's hope that the EU can pull it off because the alternative is concerning.

If people in crowds went berserk for things they really don't need what would it be like when crowds start rioting for food? Maybe black Friday is veiling the civil unrest and riots that we might be seeing sometime in the future.

How is this all playing out on the markets? Precious metals, rallied yesterday, gold up 3.36 percent 1215 USD, silver up at one stage a massive 9.28 percent 16.5 USD.

The Euro likely to remain steady as the market awaits anxiously more news on this rescue, or kick start plan. If it emerges that the plan is all hype and no action, then decline in euro will continue.

If the Eurozone falls into a steep recession, the slide in commodities is likely to continue, particularly as recent data from China supports further evidence of a slowdown in the economy.

Oil is likely to remain depressed until Russia is done. This is likely to have downward pressure on inflation, which may put off interest rate rises going forward.

Lower interest rates may cause the bond market to rally further into bubble zone causing yields to plunge even further.