Neil Howe and Bill Strauss are two historians with a unique view of history. They hypothesized that there is an 80-100-year repeatable cycle of upheaval in Western societies based on the average person's lifespan. According to their theory, we are in the CRISIS stage right now, also known as The Fourth Turning. | |
Market Update - December 2024 | |
- Following the re-election of Donald Trump, stocks rallied on hopes that he will de-regulate the economy and maintain his 2017 tax cuts that expire next year.
- All bond markets rallied on hopes that President-elect Trump's policies will lead to a dramatic reduction in government spending. Elon Musk recently stated that he is targeting $2 trillion in spending cuts.
- Commodities and foreign currencies fell as the Federal Reserve hinted that rate cuts would be slower than the market anticipates, dampening growth prospects for the global economy.
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Table 1: Market performance estimates as of 11/29/2024 (LIMW) | |
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We live in interesting times.
President Trump has been re-elected and is expected to drastically change many Federal policies. Whether it be regulation, immigration, taxes, or trade policy, we expect tremendous turmoil in 2025.
There is a lot of political anger and angst between the parties over the policy positions of President Biden and those of the incoming President. At the same time, there is little apparent middle ground and many people walk on eggshells when discussing politics publicly or with friends. While these are recent developments for us, our ancestors would recognize many of these attitudes and problems.
On a day-to-day basis it seems like we are tilting into the abyss, but two historians say this has all happened before. America is going through a transition phase and it is unclear what we will look like coming out the other side.
This note will be primarily be excerpts and summaries from the 2023 book The Fourth Turning Is Here, by Neil Howe. The concepts he uses to analyze history will help us understand the issues of the day and how history may evolve over the next 5-10 years.
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Neil Howe and Bill Strauss developed a theory in the 1990s for analyzing historical change that explains how and why our society is experiencing so much tension. They hypothesized that these transitions have happened before in a cycle called a "saeculum". Each saeculum is approximately 80-100 years long and is equal to 1 lifetime. Within each saeculum, there are four "turnings". Each turning lasts about 25 years and is equal to 1 generation.
The concept is that there are 4 different generations at any one time either being formed or using their young adult formation to attack the challenges of the day. The turning you grow up in forms your world view and shapes how your generation deals with each new societal challenge.
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The First Turning is a HIGH, an upbeat era of strengthening institutions, weakening individualism, when a new civic order implants and an old values regime decays.
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The Second Turning is an AWAKENING, a passionate era of spiritual upheaval, when the civic order comes under attack from a new values regime.
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The Third Turning is an UNRAVELING, a downcast era of strengthening individualism and weakening institutions, when the old civic order decays and the new values regime implants.
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The Fourth Turning is a CRISIS, a decisive era of secular upheaval, when the values regime propels the replacement of the old civic order with a new one.
"Each turning comes with its own identifiable mood. Always, these mood shifts catch people by surprise.
In the current saeculum, the First Turning was the American High of the Truman, Eisenhower and Kennedy presidencies. As WWII wound down, no one predicted that America would soon become so confident and institutionally muscular, yet also so bland and socially conformist. But that is what happened. The Baby Boomers were formed during this turning.
The Second Turning was the Consciousness Revolution, stretching from the campus revolts of the 1960s to the tax revolts of the early 1980s. In the months that followed John Kennedy's assassination, no one predicted America was about to enter an era of personal liberation and cross a cultural watershed that would separate anything thought or said afterward with anything thought or said before. But that's what happened. Gen-X was formed during this turning.
The Third Turning was the Culture War, an era that began with President Reagan's upbeat "Morning in America" campaign in 1984, climaxed with the dotcom bubble, and ground to exhaustion with the post-9/11 wars in the Mideast. Amid the passionate early debates over the "Reagan Revolution," no one predicted that the nation was entering an era of celebrity circuses, raucous culture wars, and civic drift. But that's what happened. Millennials were formed during this turning.
The Fourth Turning - for now let's call it the Millennial Crisis - began with the global market crash and recession of 2008 and thus far has witnessed a shrinking middle class, the MAGA rise of Donald Trump, a global pandemic and new fears of a great-power war. Early in Barack Obama's 2008 campaign against John McCain, no one could have predicted that America was about to enter an era of bleak pessimism, authoritarian populism, and fanatical partisanship. But that's what happened. And this era still has roughly another decade to run. (Note: this was written in 2022.) The Homelander generation is being formed right now."
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Table 2: Turnings in the Anglo-American Saeculum (Neil Howe) | |
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"The Fourth Turning is history's great discontinuity. It ends one epoch and begins another.
Yet as we reflect today on America's entry into yet another Fourth Turning era, we must remember this: The swiftness and permanence of the mood shift is only appreciated in retrospect - never in prospect. The dramatic narrative arc that seems so unmistakable afterward in view of its consequences was not at all obvious to Americans at the time.
During the American Revolution Crisis, General George Washington early on believed his army would likely be crushed. Even as late as the mid-1780s, nearly all the founders lamented the incapacity of their feeble confederation to govern a vast, scattered, and willful citizenry.
During the Civil War Crisis, despite the rapid crescendo of deaths in major battles that each side hoped would be decisive, no clear victor emerged. Shortly before his 1864 re-election, President Abraham Lincoln predicted that he would likely be beaten badly at the the polls and that his accomplishments would thereafter be dismantled by his opponents.
As for the Great Depression-World War II Crisis, there is a reason this Depression was called "Great". At the end of 1940, after a decade of economic misery and New Deal activism, most Americans believed the depression had not yet ended. Unemployment was still in the double digits, deflation still loomed and bond yields were hitting record lows. Looking back, we see President Roosevelt's political achievements as monumental. But at the time, no one had any idea what his legacy would be until after the climax of World War II.
Similarly, as we look at our current Crisis era, we cannot yet presume to know what America will or will not accomplish by the time this era is over. Yet basic historical patterns do indeed recur."
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The current fourth turning | |
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"The old American republic is collapsing and a new American republic, as yet unrecognizable, is under construction.
Little more than a decade ago, the old America, while not in robust health, still functioned. In the mid-2000s, most voters still read the same news and trusted their government, the two parties still conferred on big issues, Congress still passed annual budgets, and most families remained hopeful about the nation's future.
Then came the Global Financial Crisis, the rise of populism, and the pandemic. These were three hits that a healthy democracy could have withstood but that caused ours to buckle and give way, revealing pillars and beams that had been decaying for decades.
At its worst, the recent collapse has exposed our aging republic's staggering incompetence at carrying out even basic tasks. We can't keep the electricity on or baby formula stocked at stores. We can't recall how to enforce laws on the street or at the border. We can't ensure minimal care for homeless families or minimal compliance from tax-evading oligarchs. We can't conduct a peaceful military withdrawal from an allied democracy or a peaceful transfer of power from one president to another.
Incompetent governance, ebbing public trust, and declining public compliance all feed on one another in a vicious circle. One symptom is the rise of free-floating anger in public venues. Airlines, restaurants, hospitals and police report an epidemic of unruliness.
Even at its best, America's response to its recent collapse has revealed a distressing preference for policies that exacerbate long-term challenges. Yes, the bipartisan monetary and fiscal response to the 2007-2009 financial crash and the 2020-2021 pandemic did protect the have-nots and averted more serious recessions. Yet it did so largely through trickle down techniques that pumped up asset prices and sent federal debt to levels previously seen only in times of total war. Like addicts acquiring tolerance, public policy makers have backed themselves into a corner. The public braces themselves for the dark hour when the Fed can no longer ease and Congress can no longer borrow no matter how badly the economy founders.
Along the way, the dysfunction deepens. Debt pyramids grow. Savings get funneled into speculation. Markets concentrate through consolidation. Competition weakens. Productivity growth ebbs.
Abraham Lincoln, observing in 1858 that America was " house divided," prophesized that it would remain so until "a crisis shall have been reached, and passed" - after which "this government...will become all one thing, or all the other." Today, as then, America is torn by a struggle between two great political tribes, each trying to reshape the new republic toward its own goals and away from its adversary's. Today, as then, both the rhetoric of violence and threat of violence against political leaders is rising. Today, as then, few are in the mood to compromise.
However the struggle plays out, America is getting ready for a gigantic makeover of its national governing institutions. Newspaper editorials focus mainly on the wrong question. They ask which side will win. The Democrats or Republicans? The Blue zone or Red zone? The puritanical left or populist right? But this is not the most important question. In fact, the new regime will combine elements of both. The most important question is whether Americans are prepared for the trauma that will accompany the collapse of one regime and the emergence of another.
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The conclusion of our fourth turning | |
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"Very soon, something will trigger this makeover to exit its destructive phase and enter its constructive phase. What will this trigger be? Almost any new emergency could suffice.
Perhaps the trigger will be another financial crash or recession or pandemic - followed by policy paralysis or partisan upheaval.
Perhaps it will be a great-power adversary who, sensing our domestic turmoil, will doubt America's resolve to fulfill its treaty obligations - and put it to the test.
Or, perhaps America will simply fragment from within, a catastrophic failed-state scenario that could put anything else into play, from an economic crash to global chaos. Back in 2000, the very idea seemed unthinkable. Now it seems all too thinkable. Ever since the 2020 election season, close to half of Americans have been telling pollsters they believe a civil war is imminent.
Yes, in the face of adversity, the old America is disintegrating. But at the same time, America is moving into a phase transition, a critical discontinuity, in which all the dysfunctional pieces of the old regime will be reintegrated in ways that we can hardly imagine now.
The civic vacuum will be filled. Welcome to the early and awkward emergence of the next American republic."
Excerpts from the 2023 book The Fourth Turning Is Here by Neil Howe. The author extensively explains the logic behind his views and I strongly encourage you to read it. This is an easy book to skip around because the themes apply to different epochs and you can read the ones that interest you.
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Chris and I do quite a bit of our own research, not all of it based on charts and numbers. This summary of The Fourth Turing Is Here is a good example of concepts that help us to interpret what the raw economic data is showing us. As we wait for President Trump to take office, many are waiting to see what his policy changes imply for the country, economy and the markets.
If Neil Howe is correct about this Fourth Turning, then we should expect quite a bit of volatility over the next few years. We say this not to alarm you, but to remind you to be prepared to take advantage of opportunities when they present themselves. There are not many alive today that were adults during the last Fourth Turning, so it will be a new experience for most of us. Do not lose hope. A destructive Fourth Turning will be followed by a constructive First Turning.
As always, we welcome your feedback and are happy to discuss.
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Rob 281-402-8284
Chris 281-547-7542
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Christopher Lloyd, CFP ®
Vice President and Senior Wealth Planner
Lloyds Intrepid Wealth Management
1330 Lake Robbins Dr., Suite 560
The Woodlands, TX 77380
281-547-7542
Chris.Lloyd@lloydsintrepid.com
www.lloydsintrepid.com
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