Antonio Gramsci

"History has left us an infinity of traces"
"The task is to compile an inventory of the traces that history has left us"
"To understand my history in terms of other people's history"
"to explain my experience through the experience of others"
"The goal is to include the other without suppressing the difference"

"Capitalism, it seemed, was even more entrenched than ever. Capitalism, Gramsci suggested, maintained control not just through violence and political and economic coercion, but also ideologically, through a hegemonic culture in which the values of thebourgeoisie became the 'common sense' values of all. Thus a consensus culture developed in which people in the working-class identified their own good with the good of the bourgeoisie, and helped to maintain the status quo rather than revolting.

The working class needed to develop a culture of its own, which would overthrow the notion that bourgeois values represented 'natural' or 'normal' values for society, and would attract the oppressed and intellectual classes to the cause of the proletariat. Lenin held that culture was 'ancillary' to political objectives but for Gramsci it was fundamental to the attainment of power that cultural hegemony be achieved first. In Gramsci's view, any class that wishes to dominate in modern conditions has to move beyond its own narrow ‘economic-corporate’ interests, to exert intellectual and moral leadership, and to make alliances and compromises with a variety of forces. Gramsci calls this union of social forces a ‘historic bloc’, taking a term from Georges Sorel. This bloc forms the basis of consent to a certain social order, which produces and re-produces the hegemony of the dominant class through a nexus of institutions, social relations and ideas. In this manner, Gramsci developed a theory that emphasized the importance of the superstructure in both maintaining and fracturing relations of the base.

Gramsci stated that, in the West, bourgeois cultural values were tied to religion, and therefore much of his analysis of hegemonic culture is aimed at religious norms and values. He was impressed by the influence Roman Catholicism had and the care the Church had taken to prevent an excessive gap developing between the religion of the learned and that of the less educated. Gramsci believed that it was Marxism's task to marry the purely intellectual critique of religion found in Renaissance humanism to the elements of the Reformation that had appealed to the masses. For Gramsci, Marxism could supersede religion only if it met people's spiritual needs, and to do so people would have to think of it as an expression of their own experience.

For Gramsci, hegemonic dominance ultimately relied on a "consented" coercion, and in a "crisis of authority" the "masks of consent" slip away, revealing the fist of force."

My Understanding of Market Sentiment

Ever since I entered the field of finance, in 1992 from physics, I have always been puzzled by the following question: what drives the stock market for the short term (months) and long term (years)? Is it valuation, economic news, earnings’ reports, or something else? Is the market really rational and efficient, as predicted by the Efficient Market Theory (ETM)? More specifically, why did SINA Corp. tank 45% and rally 50% within three months without much news or change in the fundamentals of the company?


In the mainstream media, reporters and pundits tend to attribute every little price movement to some underlying fundamental change, which ranges from economic growth expectations, to earnings, to geo-political events. For many years their arguments sounded very convincing to me. If they were right, good news should be followed with positive price actions, and bad news should be followed by price declines. In my experience, however, I find those explanations unsatisfactory because they do not work all the time. What seems to be really going is that the market moves first and then the media scrambles to looks for a smoking gun. Such a narrative is typically provided by some professionals or experts. In the natural sciences, which are based on evidence, any theory that works only partially is either rejected, or has to provide well-defined boundaries. However, in soft fields like finance, that is not a requirement. Therefore, it is not surprising to see that two Nobel Laureates in economics can give opposite assessments of the economy or give two completely different recipes for a problem.


As for Efficient Market Theory (ETM), I have not met many real, rational and independent market participants, who save the right amount for retirement; are not overweight, and who are immune to financial manias and panics. On the contrary, most market participants are highly social, half of them being over-weight and emotionally driven creatures who can only be rational at times. The question is whether a theory designed for rational robots is applicable to real human beings. The answer should be obvious.


How about valuation? After all, legendary value investors such as Warren Buffett and Peter Lynch seem to be the only credible ones. The problem with valuation is that it simply cannot explain the existence of so many stocks that are trading at levels that defy the gravity of reasonable valuation.


What drove SINA up and down wildly then? After exhausting all rational factors that I can think of, the only variable that I am left with is market sentiment, which seemed be in sync with the price behavior. There are ways to measure market sentiment, even though it is not as tangible as GDP or a price-to-earnings (PE) ratio for a stock or the market. Over the years we have developed many technical indicators to gauge how Mr. Market feels, and most importantly when He is about to change his mood. The reason that the study is so useful or beneficial is that a rising tide lifts nearly all stocks when Mr. Market is happy. Under this market friendly condition, it really pays to expand one’s portfolio, which acts like a pot full of pop corn. The crucial task is to get enough pop corn in the pot, and not wasting energy on the corn seeds that did not pop for whatever reason. On the other hand, almost nothing goes up when He is mad. Then it does not really pay to own stocks, which act more like a field of crops after a big freeze in the Fall. From my experience, and the study of historic market data, Mr. Market does not change his mood easily. He only changes his mood after an extremely bearish or bullish price action of the whole market during a two to three day period, provided there are no extreme external events such as major natural disasters, failure of systemically important institutions, etc. Our goal is to pin-point these days, so that we can adjust our portfolio exposures accordingly.

Individual stock positions can also be managed based on market sentiment. Too often, good earnings reports were poorly received in a bear market when the odds are against owning stocks. Similarly, mediocre earnings can be forgiven in a friendly market. In other words, what is directly driving the stock is the perception of fundamental factors. Therefore, one should be bold in a bullish market and cautious in a bearish market during the earnings season.

What are the drivers for a stock in a long run term (years) ? Again, I believe it is the long term expectation, which is another form of sentiment. Let's take Amazon (AMZN) and Research In Motion (RIMM) for example. Both companies increased their revenue and earnings about five fold. Yet, RIMM went up and came down to the same level and AMZN went up about 5 fold. The main difference in performance is that RIMM's future expectation is gloomy because it is losing against iPhones and the smart phones based on Android. On the other hand, AMZN is crushing its competitors such as Barnes and Noble, Best Buy, Circuit City (bankrupt) and so on. Its future looks as bright if not brighter than 5 years ago with its accelerating growth in electronics segment and AWS. The implication is that one not only has to right the fundamentals, but also the perceived prospect in the future! It sounded harder than it is. Let's use Microsoft (MSFT) as an example, one can make reasonable projections of its future financial metrics. It is perceived as a mature and not an exciting company which has a dominant position and it is reasonably cheap. Five years from now, that perception is unlikely to improve.


It is much harder to figure out what drives the market as a whole because it involves many more variables and the processes are non-linear. Because timing the market is difficult, most market participants don't even try. Many adopt simple "slogans" to guide their decision making. "Buy when there is blood on the Street (Wall Street)" or "When the market is greedy, I am fearful and when the market is fearful, I am greedy" are a few examples of the phenomena.


What I described above is my preliminary finding about market behavior. My goal is to develop an intuitive description of the market, supported by observations. I believe we have just barely scratched the surface in that area. Currently, we are studying whether certain sectors have more sway in shaping market sentiment than others.