The Fourth Turning

I must admit that last night I was saddened to see the protests that are turning violent across the U.S. I get the anger, and I am all for peaceful protests, but I must admit I don’t like seeing the violence and destruction that is taking place. I am sure many of us are confused about what is happening in the world, from Hong Kong to France to Chili, etc. in the past 12 months. And then layer on the pandemic and resulting economic collapse, and the world just doesn’t seem right. Welcome to the Fourth Turning

As I moved through my journey to better understand the economy and markets starting in 2011, I came across a book that made me understand better the societal shifts and we move through different time periods. This understanding started when I heard Neil Howe speak at an investment conference about The Fourth Turning, a book that he co-wrote with William Strauss that was published in 1997. After hearing Neil speak, I immediately purchased the book to learn more.

So a little background on Neil. He is a historical economist with an undergraduate degree in English literature from U.C. Berkeley, and advanced degrees in economics and history from Yale University. In the 1990’s, he and William Strauss (now deceased) began studying social generations in history. Their first book, Generations, reflected the beginning of this work.

Based on their study of history, they noticed a defined pattern in society, where there are four types of generations that recur over time in a cycle. As I came to better understand Neil’s work, I realized that all of human life is in cycles. We have monthly cycles, seasons of the year, business cycles, etc. I encourage you to visit The Fourth Turning website, wwww.fourthturning.com to learn more. The website contains basic information from the book to understand generations, generational archetypes, and the four turnings. Below is an introduction in turnings from the website:

History creates generations, and generations create history. This symbiosis between life and time explains why, if one is seasonal, the other must be. If generational archetypes repeat in a fourfold cycle, this implies a recurrence of social moods or eras that form these archetypes sequentially.

This is precisely what Strauss and Howe discovered as they investigated generations in American history: Over the past five centuries, Anglo-American society has traversed a four-stage cycle of social moods or eras. At the start of each era–or “turning” as the authors call them–people change how they feel about themselves, the culture, the nation, and the future. Each turning tends to last about twenty years: roughly the span of a generation, and the amount of time it takes to pass through one entire phase of human life. The Romans named this length of time the saeculum, meaning both “a long human life” and “a natural century.”…

lifecourse.com/about//turnings-introduction.html

The length of the four turnings are about 70-90 years, approximately the length of a long human life. These four periods each have a distinctive characteristic, as follows:

First Turning

The First Turning is a High…This is an era when institutions are strong and individualism is weak. Society is confident about where it wants to go collectively, even if those outside the majoritarian center feel stifled by the conformity. Americas most recent First Turning was the post-World War II American High, beginning in 1946 and ending with the assassination of John Kennedy in 1963…

Second Turning

The Second Turning is an Awakening…This is an era where institutions are attacked in the name of personal and spiritual autonomy. Just when society is reaching its high tide of public progress, people suddenly tire of social discipline and want to recapture a sense of personal authority. Young activists and spiritualists look back at the previous High as an era of cultural poverty. America’s most recent Awakening was the “Consciousness Revolution,” which spanned from the campus and inner-city revolts of the mid-1960s to the tax revolts of the early ’80s…

Third Turning

The Third Turning is an Unraveling…The mood of this era is in many ways the opposite of a High. Institutions are weak and distrusted, while individualism is strong and flourishing. Highs follow Crises, which teach the lesson that society must coalesce and build. Unravelings follow Awakenings, which teach the lesson that society must atomize and enjoy. America’s most recent Unraveling was the Long Boom and Culture Wars, beginning in the early 1980s and probably ending in 2008…

Fourth Turning

The Fourth Turning is a Crisis…This is an era in which America’s institutional life is torn down and rebuilt from the ground up–always in response to a perceived threat to the nation’s very survival. Civic authority revives, cultural expression finds a community purpose, and people begin to locate themselves as members of a larger group. In every instance, Fourth Turnings have eventually become new “founding moments” in America’s history, refreshing and redefining the national identity. America’s most recent Fourth Turning began with the stock market crash of 1929 and climaxed with World War II…

https://www.lifecourse.com/about/method/the-four-turnings.html

So, if you believe the work of these two gentlemen, the reason for chaos in the world right now is due to being in the middle of the most recent Fourth Turning, starting with the Global Financial Crisis in 2008, and likely culminating by the end of the decade of the 2020s. By the way, in the book they predicted the rise of populism, nationalism, and the emergence of leaders like Donald Trump, Jair Bolsonaro in Brazil, Andres Manuel Lopez Obrador in Mexico, Janos Ader in Hungary, Xi Jinping in China, and many others already in power or soon to come in the middle of this turning. We have had a couple of years of trade wars between the U.S. and China (and others), and in no way has that been settled. I believe the pandemic has just quickened what was already coming in the next few years.

Of course, my writings are on economics, so let’s review the current fourth turning from an economic standpoint. It all started with the financial crisis in 2008, which was triggered by a bubble in the U.S. housing market. We came very close to an even worse financial crisis as the credit markets froze. You know when large, strong companies like Walmart suddenly cannot access the short-term credit market, there is a big problem. I believe 2008 also uncovered some companies that had too much debt, such as General Motors and the large U.S. banks. The banks then had to be bailed out due in part to risky investments that went bad as the market fell. The Federal Reserve saved the day with the first round of quantitative easing (QE1). In a later post, I will cover the subsequent central bank mistakes that have left us now in another perilous situation, both in the U.S. and many other markets.

I am confident we have not solved our financial problems across the globe, and there will be more financial turmoil to come. Remember, the Great Depression occurred during the last Fourth Turning, and the amount of global debt will be a problem at some point in the next ten years.

According to Mr Howe, a Fourth Turning does not necessarily have to climax with a significant war, but in many cases they do. The last Fourth Turning ended with World War II. The one before that ended with the Civil War. And before that, the Revolutionary War. And the book and website both go back to the 1400s and document every turning since then.

So I urge all of us to get prepared to deal with crises for a few years to come. I think first we need to get mentally prepared. For me, knowing what is coming and getting mentally prepared reduces my stress, as I can see the big picture. Then, I would recommend that we all get financially prepared. I am not an investment advisor, and therefore I am not advising anyone on how to invest their money. But I think it is prudent for anyone to have some alternative investments that will hold their value in a time of crisis. Hard assets will be the key. So things like real estate and precious metals may come in very handy, especially if we have a currency crisis. If that happens, it will not only be stocks and bonds (i.e financial assets) that lose significant value, but currencies could as well. We now have the Federal Reserve pumping trillions of dollars into the market, and at the same time the Treasury is issuing trillions of dollars in bonds to fund the new spending bills to manage our current crisis caused by the pandemic. Is this all necessary? Yes, absolutely. But as we add more and more debt, I fear there will come a time when we will regret our past actions. And it will likely happen in the next 10 years as we move through our Fourth Turning.

The good news is the 2030s will will be a new High, and life will get much better!

I appreciate all of you who are reading my blog posts. I would appreciate any feedback or topics you would like for me to cover. I do not consider myself to be an expert in any of this, but I have learned a lot over the past 10 years. And I am ready to fight through the next 10 years and get to the next period of good times.

Best Regards,

Brent