FOURTH TURNING GAINING ATTENTION

A gentleman from another Ivy League University that I have had email correspondence with sent me an interesting email this morning. He had been asked by a world renowned hedge fund manager to review and summarize Strauss & Howe’s Fourth Turning. The hedge fund manager was intrigued by the book and wanted another opinion from someone he could trust. Below is the review. It seems that the Fourth Turning concept is gaining traction among smart open minded people.

Sorry for the highly delayed opinion of Strauss and Howe’s “The Fourth Turning”. I spend enough time keeping up with daily noise that mowing through books is difficult. A quick clarification. I write up and post reviews of books I read, so this letter will assume a little flavor of that. I should add that my motivation to read the book was initiated by the drumbeat in the bear community, enhanced by Jim Quinn’s “Burning Platform” blogs based extensively on the premise of an impending Fourth Turning, and accelerated to the point of action by your interest in the book. (I am particularly intrigued that a guy managing tens of billions and benefiting enormously during what the authors call the “unraveling” would be so interested in such a book.) I especially enjoy reading books about the present (and future) that are not written contemporaneously (1996 in this case); it makes the resonances so compelling when they arise.

To refresh your memory from your distant read, the book describes a scenario in which the saeculum (80 year generational cycle) is comprised of four societal cycles (a high or rebirth, awakening, unraveling, and crisis), each lasting about 20 years. A parallel analysis describes generational types that spend essentially a human lifetime proceeding through the societal four cycles in a sequence that depends very much on which cycle one is born into. There appears to be a perfect symmetry–every person experiences four cycles and every cycle has four different generations experiencing it, each at different stages of their lives. In practice, I found the societal cycles–the temperaments and actions of society at large–far more understandable than the generational archetypes. I think this asymmetry is caused by the authors’ looser definition of generations (more of them since WWII, for example). The premise that each turning has a personality that is a direct consequence of the personalities of preceding generational cycles–Turning 1 (rebirth) naturally leads to Turning 2 (awakening) which naturally leads to turning 3 (unraveling) culminating in Turning 4 (crisis)–is certainly provocative. The critical component of the thesis is not that bad things happen in cycles but rather society’s RESPONSE to the incessant wave of events (Black Swans) follows cycles. Another critical component is that these generational changes will arrive regardless of the minutiae of events, and they will do so rather abruptly. (Clearly, parallels with secular market changes are inescapable.)

First, the weaknesses. The book seems to suffer a little from trying to place inherently sloppy patterns into neat categories. This is not a major problem, but potentially a source of allergic reaction to some. The historical treatise describing previous studies of cycle theories published over literally two millennia (Kondratiev being the most familiar) was necessary but offered a slow start to the book. (It would have been a killer if I hadn’t read a lot of history over the last decade.) This historical treatise was especially tough in that, although I could buy into their assertion that the War of the Roses was a Fourth Turning, I could not begin to imagine the societal moods necessary to place it in the right context. By contrast, generational changes in the 20th century US fit like an old shoe. None of these issues are fatal, just the weakest links.

With that said, I found that “The Fourth Turning” seemed to dovetail nicely into a Worldview that I have been developing for over a decade. I had many times noted to friends and on blogs that kids growing up in the 80’s and 90’s couldn’t possibly understand that the World can be a cruel place; the world rotated on its axis without precessing. Also, EVERY generation concludes that the subsequent generation is all screwed up so surely there are generational rollovers. The description of the crisis era not just involving conflicts but conflicts leading to catharsis also seems to fit the facts. I thought they did a great job of describing the eras and personalities in the 20th century–an insightful stroll down memory lane. I am a huge fan of pithy quotes, so the enormous number of quotes used to describe temperament of the various eras hit the hot bone on me.

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The money shot came in the last 100 pages of the book in which they predict (again, in 1996) the Fourth Turning (the crisis) would arrive in the 2005-2010 window. Of course, every period has events that could be construed as proximate triggers (not causes but triggers) for a turning as well as crises, but the authors’ description was hauntingly accurate. I don’t know if you remember this, but they mentioned the trigger as possibly a financial crisis (check), broken promises by government (check), suffocating student loans (check), boomers beginning to overtax the system (check), and then the most surreal statement of all “something so trivial as a tea party.” I read that last one about five times. These guys clearly understood the unsustainability of the factors that have shoved us into gold-based investments. The stated influence of Pete Peterson on their thinking was readily apparent. (My son just so happens to work for him.)

As I read the book, I found myself pondering the Fourth Turning and concluded that, if their generational model is correct, it has indeed arrived. I asked a colleague what the historians would label as the proximate trigger, and he said 9/11. I don’t think so. Could it be the financial crisis? Closer, but still not quite right in my opinion. I would say that the proximate trigger was the disastrously inadequate response to the financial crisis. Of course, I am not referring to a Krugmanesque monetary policy but rather to the complete absence of new safeguards and retribution. I suspect that authorities might go after many of your friends in the hedge fund world, but that totally misses the mark; you guys are expected to game the system. By example, prosecuting Rajaratnam (who I am sure is worthy of a few convictions) but not Gupta decidedly misses the mark. Gupta was the one who breached public trust in the system. The authorities had to clean up the system itself, and they have clearly failed miserably. There’s only one conviction resulting from the mortgage crisis and it was a guy who lied on a liar loan. Well duh! Of particular, importance, they didn’t just try and fail to clean up the system, they never even tried. I think society watched patiently and, only within the last few months, has started to get angry. (I just read an article by Jeff Sachs this AM expressing enormous anger over the crime wave that has gone unchecked.) This period in which we began to realize nothing has changed may be identified as the brief period in which, ironically, society’s temperament changed quite drastically. It will be marked as the onset of the Fourth Turning.

If Strauss and Howe have it right then it is clearly time to duck and cover. What I see going forward are (1) resource constraints (as discussed previously), (2) conflict with China (possibly in the cathartic final stages); (3) seemingly endless shock waves resulting from collapsing credit markets (seems like an easy call); and (4) the demographic problems and defaulted promises (clearly articulated by the authors.) As Stephen Roach once said, however, “the ultimate insult would be to call it right and play it wrong.” I don’t see any riskless moves at this point. Admittedly, the riskless moves are often the ones in which there is so much perceived risk that it is priced in and, thus, removed…but I still can’t see them yet. A guy named Chris Martenson told me that people often say buying gold in 2001 was so easy because it was obviously so cheap. We shared a laugh over that one. Being a contrarian is painful as hell (as you know).

After finishing a book, I scamper over to Amazon’s comments section to read what others thought. I especially like to read the negative reviews (one and two stars). It is clear that most of the negatives come from those who didn’t understand the most fundamental tenets of the authors’ thesis. Others took offense at the description of their own generation (especially the youngsters lacking some wisdom imparted by time). Some saw a political agenda. (I did not.) A slug of reviews posted right after 9/11 emanated  from people looking for some sort of explanation. Given that 9/11 was a bad event in the third rather than fourth turning, they were not going to find any. Still others simply could not grasp that the era at the time of posting could possibly give way to a new one, which represents precisely the authors’ premise that the turnings keep marching on and arrive without much warning. Of course, the five star reviews were people like me who found that the book got in their heads and rattled around a lot.

Hope this review offered some insight.