July 19, 2024
By Steve Blumenthal
“Excellence is never an accident. It is always the result of high intention, sincere effort, and intelligent execution; it represents the wise choice of many alternatives. Choice, not chance, determines your destiny.”
– Dr. Aristotle
There is good news coming––really good news––though it’s hard for us to see it just yet.
It is evident that we are in a period of tremendous discord, geopolitically and domestically, with nothing more on the front page than the ugliness of our politics. As Ian Bremmer tweeted late last night, “Never in my life have I seen a week in U.S. politics like this.”
On a walk this week, my wife, Susan, and I started talking about the book The Fourth Turning Is Here by Neil Howe. Neil is a historian, economist, and demographer, and in The Fourth Turning Is Here, which came out last year, he revisits the theory of cyclical generational eras in American and Western history that he and William Strauss first wrote about in their 1997 book, The Fourth Turning.
Their theory states that over history, there are eras, or turnings, of recurring generational archetypes characterized by distinct social, political, and economic attitudes. Each turning lasts roughly 21 years, and every fourth turning sees a major crisis, which then prompts the start of a new cycle. These crises are followed by recovery periods in which people come back together, rebuild institutions, and reconnect with their friends, family, and communities––which may be important financially. Often in these crisis periods, war is an issue. We are seeing a lot of war today. Financial challenges are also an issue in these crises, and we are seeing that today, with nearly $35 trillion in U.S. debt (the true number of ~ $100 trillion if you add in Social Security and Medicare) and total unfunded liabilities, all in, are hitting $217 trillion. (Source: usdebtclock.org)
It sure does look like a fourth-turning.
Neil’s clients are wealth managers, and he is often asked how one should deal with a turning like this. He says:
“Diversification is difficult in the fourth turning because, at times of real crisis, all the correlations go to one right, so things tend to go down. At the same time, I do advise people to stay away from nominally denominated fixed income. Inflation is always one of the ways in which the government gets out from under the vast amount of liabilities it is likely to incur, and I don’t think that’s it’s going to be any different this time… Financial repression is sort of the other arm of inflation. Inflation devalues your assets. So, I think getting out of those nominally denominated bond assets is important.”
More from Neil below. Grab your coffee and find your favorite chair. My bullet-point notes follow, along with a link to an episode of Jim Puplava’s Financial Sense Newshour podcast with Neil Howe. Put your sneakers on, plug your earbuds in, and head out for a walk. Listen in, it’s Neil at his very best.
Keep in mind Aristotle’s words, as quoted at the start of this letter: “Excellence…is always the result of high intention, sincere effort, and intelligent execution. Choice, not chance, determines your destiny.” I’m not talking about November 2024. While important, it is much bigger than that. Now, let’s get to it.
On My Radar:
- The Fourth Turning Is Here, Neil Howe
- Bullish Investor Sentiment – Fourth Highest Reading Since 1995?
- Random Tweets
- Personal Note: The Olympics
- Trade Signals: July 18, 2024
See Important Disclosures at the bottom of this page. Reminder: This is not a recommendation to buy or sell any security. My views may change at any time. The information is for discussion purposes only.
The Fourth Turning Is Here, Neil Howe
As I mentioned above, I listened to Jim Puplava’s interview with Neil Howe on Puplava’s podcast, Financial Sense Newshour. It was so good that I thought I’d share the highlights here and provide you with a link to the recording. The following are my notes:
- A fourth turning is a generational event with a cycle of just over 80 years, with each turning lasting approximately 20-21 years. Neil said we’re about halfway through the current fourth turning, which will conclude in 2033.
- Fourth turnings are tough, but the first turnings are wonderful.
- Neil examined a number of current events that correlate with prior fourth turnings. He will continue to monitor the progress of the current fourth turning and provide updates on the changing social mood and generational archetypes.
- He advises people to stay away from nominally denominated fixed-income assets and focus on the probability of financial repression and inflation.
- He believes we are moving towards exploring the potential for a new era of community and connection as younger generations demonstrate a yearning for it. (Amen to that.) Discussing the current fourth turning and future hope, Neil talked about his concept of generational theory and its application to American history. He highlighted the parallels between the current state of the nation and past eras of political and social upheaval, marking it as a potential fourth turning–a period of significant change and reorganization.
He cited declining civic life, rising partisanship, and an increasing divide between rich and poor as symptoms of a potential fourth turning. He also pointed to the contrast in attitudes between Baby Boomers and Millennials, emphasizing the importance of trusting the energy and potential of younger generations to offer new solutions and resolve crises.
Lastly, he expressed optimism for America’s future and shared his vision of a society in 2050 where community will be more important than individualism.
A couple more points: In discussing the attitudes of Baby Boomers and Millennials, Neil stated that Boomers sought to defy societal order and conformity, while Millennials searched for order and a stable middle-class existence. Each new generation, he says, compensates for the excesses of the previous one. In discussing his vision of the United States of 2050, Neil reminded us of the great achievements of the 1950s, including rapid wage growth, a strong middle class, and gains in minority rights.
This is not a recommendation to buy or sell any security. It is for educational discussion purposes only. Opinions are subject to change. Consult your advisor
Bullish Investor Sentiment – Fourth Highest Reading Since 1995?
The NDR Crowd Sentiment Poll serves as a barometer for short- to intermediate-term shifts in investor psychology. I’m sharing it with you today due to the near-record-high level of bullish investor optimism. Let’s look at how it works, then check out the chart.
The composite reading draws from seven distinct sentiment indicators to reflect the psychological landscape of a broad spectrum of investors. These indicators predominantly measure the ratio of bullish to bearish investors across various categories, incorporating data from:
- Investors Intelligence: Surveys of stock market newsletter authors
- American Association of Individual Investors: Surveys gauging market expectations among individual investors
- CBOE Put/Call Ratios: The volume ratio of call options to total options (calls plus puts) traded on the Chicago Board Options Exchange
- Rydex Fund Assets: The ratio of assets in bullish market timing Rydex funds to total assets in both bullish and bearish Rydex funds
- MBH Commodity Advisors Daily Sentiment Index for the S&P 500: Surveys of non-professional retail traders
- Other investor and trader surveys
This composite sentiment reading indicates the percentage of investors who are bullish on the stock market at any given time.
For risk managers and market traders, the idea is to align with sentiment trends (i.e., the trend is your friend) until sentiment reaches an extreme and reverses, at which point you adopt a contrarian stance. High bullish sentiment often coincides with intermediate-term stock price peaks, while low sentiment (predominantly bearish investors) typically aligns with stock-price bottoms. In the chart, you’ll see that the most recent reading is 74.6, which is the fourth-highest reading since 1995.
The NDR chart provides an analysis of market returns when the sentiment reading is within specific sentiment ranges. Historically, S&P 500 returns are weaker when sentiment is excessively optimistic (a reading above 66) and stronger when sentiment is extremely pessimistic (a reading below 57). The best returns occur when the NDR Crowd Sentiment Poll rises from below 57 to within the 57-66 range, indicating a shift from extreme pessimism but without reaching excessive optimism. This sweet spot suggests that bearish investors are re-entering the market, but the majority have not yet turned bullish.
I find the NDR Crowd Sentiment Poll valuable as it aggregates multiple sentiment indicators, pinpointing levels where investor sentiment has historically reversed. This insight can aid in anticipating future reversals in investor psychology and stock prices.
Some considerations: When optimism is high, the cost to buy put options is typically low. Think of buying put options as one way to hedge stock market exposure. A little bit like fire insurance for your house. Also, call options are more richly priced when bullish optimism is greatest. Selling out-of-the-money covered call options and buying put options is a strategy that may be used to hedge exposure. Talk to an options market professional about how you might implement such a strategy.
Not a recommendation to buy or sell any security. For discussion purposes only. Current viewpoints are subject to change.
Random Tweets
Debt:
Source: @menlobear, @McClellanOsc
One more:
Source: @KobeissiLetter
I “like” and “retweet” posts I find interesting. I enjoy X because I can easily follow people I like to keep On My Radar. You can follow me on X (formerly Twitter) @SBlumenthalCMG.
Not a recommendation to buy or sell any security. For discussion purposes only. Current viewpoints are subject to change.
Personal Note: The Olympics
“A coach is someone who tells you what you don’t want to hear, who has you see what you don’t want to see, so you can be who you have always known you could be.”
-Tom Landry
My good friend Phil Karn, who coaches for the Philadelphia Union Academy program, and I managed to sneak out for a late afternoon round of golf at Stonewall yesterday. As we were driving in the cart, Phil leaned over and shared a text he had just received from Paxton Aaronson: “Coach, thank you for everything, excited for the Olympics.” Phil has been talking to me about Paxton for years. Paxton is a young soccer player who plays professionally on a Dutch team as an attacking midfielder. Phil has coached Paxton since he was just 13 years old. This year, he’s also playing in the Paris Olympics on the U.S. men’s team, which opens against France on July 24. Seeing Phil’s face as he received Paxton’s text––the word “proud” is an understatement.
Great coaches tell their athletes not to be afraid to fail and fail frequently. No matter what the profession, failure is the path to great success, depending on the will inside and the choices made.
“A coach is someone who tells you what you don’t want to hear, who has you see what you don’t want to see, so you can be who you have always known you could be.”
-Tom Landry
I am really happy for my friend—a nice reward for a great coach.
Interestingly, there is an age cut-off for Olympic soccer. The maximum age is 23, and each team is only allowed three players older than that. That’s not the case with other Olympic sports, like basketball. And this year, another USA dream team will be taking the court. The team is loaded with Joel Embiid, LeBron James, Steph Curry, Kevin Durant, and more–many players well into their 30s.
During early morning coffee this morning, I asked Coach Sue (my beautiful wife and favorite coach, for new readers) if she had any motivational sports ideas I might share with you. Specifically, I was thinking about how important adversity is to learning, growing, and succeeding. Contrast is a great thing. Fail in a big game? Miss the important shot? You either quit or you get back up and get after it.
Susan squirrels away coaching clips from Instagram, and she shares them with other coaches and her players. She sent me this quote by Adam Grant. “Humility isn’t a sign of low self-esteem. It’s a mark of high self-awareness. The goal isn’t to deny your strengths. It’s to see your strengths and shortcomings accurately. The first rule of improvement: recognize room for improvement. Narcissism feeds ego. Humility fuels growth.”
She also sent me this clip of a comedian acting as a coach preparing his team for a game against the U.S. I hope you enjoy it.
Click on the photo to go to the Instagram page. Make sure you unmute the page and turn up the volume. Click on the small (>) carrot in the middle right of the screen. There are a few different clips to watch.
I want to end on an optimistic note. I believe we will pull together, I believe in our entrepreneurial spirit, and I believe in our ability to accept failure as a stepping stone to great success. Get knocked down. Get right back up. I deeply believe we will do the work, gut it out, and find ourselves in a much better place together as a team.
My friend Ben Hunt is calling the period ahead the Great Revine. Mauldin calls it the Great Reset. Dalio calls it the End of the Debt Super Cycle. Neil Howe calls it the Fourth Turning. I’m not sure who the future leaders are going to be, but I know how we can work together, debate our differences, and share a cold beer together, enjoying our friendship. Not everyone will join in, we just need a few to see the light.
In the meantime, lights on with an optimistic heart!
I hope you enjoy Neil Howe’s interview as much as I did.
With kind regards,
Steve
“Extreme patience combined with extreme decisiveness. You may call that our investment process. Yes, it’s that simple.”
– Charlie Munger
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“The blue line in the lower section shows how much the orange line is above or below the long-term trend line. It is currently in the “Overvalued” zone. Lastly, the data boxes at the bottom of the chart display the annualized gains based on each zone (Overvalued, Fairly Valued – blue line in the middle zone, or Undervalued).”Please take note of the following text:
“The blue line in the lower section shows how much the orange line is above or below the long-term trend line. It is currently in the “Overvalued” zone. Lastly, the data boxes at the bottom of the chart display the annualized gains based on each zone (Overvalued, Fairly Valued – blue line in the middle zone, or Undervalued).”