Back in June, I wrote a piece about the need to build a new America, where I discussed how markets naturally react to certain economic situations.
Those reactions are typically expressed as a feedback mechanism in which prices rise and fall in accordance with supply and demand.
Deeper relationships exist as well. For instance, the finished products of certain natural resources often become raw materials or input costs for another – thereby making them all interconnected.
Or to paraphrase my column from all the way back in April, producing crude oil requires steel pipe; producing steel pipe requires iron ore and coal; producing iron ore and coal requires diesel; and producing diesel requires…drumroll, please… crude oil.
As flawed corporate judgments interfere with the natural interplay between the supply and demand of both raw materials and finished products, it gives rise to a relatively predictable boom-bust cycle that reverberates up and down the supply chain.
But there’s one more wrinkle… the flawed human judgments that originate from governments.
With two such strikingly different candidates on the ballot – one a complete novice and the other a 47-year political veteran – I thought it would be instructive to look at the evolution of our Republic’s leadership through the lens of experience.
This is a deep rabbit hole, so it took me a couple of weeks to distill my thoughts and findings into any sort of analysis, and in the end, I learned way more than I bargained for.
Let’s just say the results of this work were… concerning.
A Hard Rain’s Gonna Fall
What initially set me down this path was a chart posted on Reddit that juxtaposed each President with their prior top-level government work (memberships in the US House or Senate, judicial positions in state or federal Supreme Courts, governorships, or heads of agencies at the Federal level), alongside any relevant military service.
The pattern I saw was troubling, as there were two clear trends of decreasing top-level experience. One of those trends ended with the Presidency of Franklin D. Roosevelt.
The other ends now.
Source: Smithsonian Institute, Wikipedia
But that decline occurs over a fewer number of Presidents and gets incredibly volatile as we progress through the 1800’s.
Back in early September, I identified the root cause of that decline – economic inequality during the Gilded Age – which took hold as the “Robber Barons” of that era amassed outsized wealth compared to the masses.
That increase in income inequality, exacerbated by the failure to completely erase the knock-on effects of slavery, had several knock-on effects. First, it gave rise to an increasing social unease. And in turn, that resulted in not just a disconnection between the popular vote and the Electoral College, but also the assassinations of two Presidents.
Because of that work, it occurred to me that expanding the above chart of prior experience into a time chart might be more illustrative.
First off, that would allow me to adjust the chart to show the increasing political experience of two-term Presidents.
But more importantly, it would allow me to overlay the US’ major triumphs and conflicts over that time, including those Electoral College crises and acts of violence toward our top office.
The resulting patterns… are jarring.
Source: Smithsonian Institute, Wikipedia, Seawolf Research
If we count the number of years from the start of the American Revolution to the beginning of the Civil War, that peace lasted roughly 85 years.
From the Civil War through the beginning of World War II is another 80 years.
And the distance between World War II and now… is 79 years.
During each of those periods, the country started in a period of heavy government involvement in rebuilding society.
First, the Era of Good Feelings, in which we established our new government. Then, during the Reconstruction Era, where we literally rebuilt the country from the ground up. And finally, during the post-war Golden Age of Capitalism, when we shouldered the financial burden – and thereby also reaped the benefits – of rebuilding the entire world.
But following those high points came the inevitable unwinding of that shared prosperity as government failed to effectively regulate technologies that came into existence designed to exploit ever-increasing scale and margin at the expense of jobs and comparative wages.
The resulting economic inequality simultaneously generated an increase in polarized populism – and an accompanying desire to remove all “career politicians” from office.
Unfortunately, political inexperience often gives way to poor executive decisions. For instance, inexperienced Millard Fillmore’s Compromise of 1850 postponed rather than resolved the North/South split over slavery, ultimately leading to the divisive Kansas-Nebraska Act, which led to Civil War.
Similarly, Herbert Hoover’s protectionist tariffs following the Crash of 1929 worsened the subsequent Great Depression, while Woodrow Wilson’s voluntarily imposed policy of neutrality at the outset of World War I and those forced on Franklin Roosevelt by Congress early on his term both ultimately led to direct US involvement.
We see clear echoes of that period today, with more than 20 million people on some form of unemployment an unraveling real economy, and Smoot-Hawley-esque protective tariffs already put in place by a President, who like Herbert Hoover, is a wealthy but politically inexperienced businessman.
As such, the cards seem to be aligned for catastrophe. Or to conjure Bob Dylan’s 1962 song, “A Hard Rain’s Gonna Fall”.
Generational Dynamics and the Fourth Turning
This pattern – an 80 to 100-year cycle from rebirth to prosperity to economic imbalance to crisis – occurs with startling regularity across human history.
Although first codified by the Etruscans of northern Italy in roughly 900 BCE, it was assimilated into Roman culture when they conquered that civilization. That period of time, called a saeculum, was approximately the same span of time as a long human life, and was eventually further refined into what is referred to in French as a “siècle”, in Spanish as a “siglo…”
… and in English as a century.
The key takeaway here is that younger generations fail to learn the historical lessons internalized by their parents, grandparents, and great-grandparents.
And because of that, we are doomed to repeat their mistakes.
That idea has occurred to most of us throughout our lives, perhaps most notably in that spurious quote often attributed to Mark Twain – “history doesn’t repeat itself, but it often rhymes”.
But at least in mine I had never heard it codified until I read Neil Howe and the late William Strauss’s 1997 book The Fourth Turning: An American Prophecy.
Upon re-reading it last week, I was startled to read the following passage – again, written in 1997:
“The next Fourth Turning is due to begin shortly after the new millennium, midway through the Oh-Oh decade. Around the year 2005, a sudden spark will catalyze a Crisis mood. Remnants of the old social order will disintegrate. Political and economic trust will implode. Real hardship will beset the land, with severe distress that could involve questions of class, race, nation, and empire. Yet this time of trouble will bring seeds of social rebirth, consensus about what to do. The very survival of the nation will feel at stake. Sometime before the year 2025, America will pass through a great gate in history, commensurate with the American Revolution, Civil War, and twin emergencies of the Great Depression and World War II.
The risk of catastrophe will be very high. The nation could erupt into insurrection or civil violence, crack up geographically, or succumb to authoritarianism.”
All of these things have already happened to us during these past four years.
And while some of these events may have been accelerated by former Trump campaign manager Steve Bannon’s unhealthy obsession with this book, they didn’t exactly come out of nowhere.
Despite passage of the Civil Rights Act, the period from 1971 to 1981 saw four separate assassination attempts on President’s lives. And while the Reagan Revolution may have ended 1970’s inflation and the Cold War, the increasing moral and cultural wars waged by the Boomer generation saw increasingly polarized political swings.
The shift to the right under Reagan and Bush I was followed by one to the left under Clinton. The next generation saw a shift further to the right under Bush II, and further still to the left under Obama.
Now, of course, we’re enduring a jolting populist swing to the extremely far right under Trump.
Because remarkably similar events happened leading up to each of the country’s previous major conflicts, Strauss and Howe divide each 80-100-year period into four “turnings” similar to the ones I outlined above.
First, there is a “High” like the postwar Era, then an “Awakening” like the 60’s cultural revolution, an “Unraveling” like the 1980’s culture wars, and finally a “Crisis” like the one we’re enduring right now.
Similarly, the generations born during those four turnings – Prophets, Nomads, Heroes, and Artists – take on characteristics of those times, and also tend to move away from their parent’s generational values and beliefs.
Moreover, each generation plays a key role in transitioning from one turning to the next as they come of age.
In the current fourth turning, that means the self-absorbed Prophets (the Baby Boomers) are the divisive elders leading us into Crisis, as the alienated, less powerful Nomads (Generation X) are increasingly thrust into the role of pragmatic, moderate midlife managers seeking to negotiate a compromise of shared values.
At the same time, the team-oriented, overly-confident Heroes (Milennials – a term initially coined by this book) will not only lead the fight, but supply the shared values on which a peace will be negotiated.
And finally, the younger Artists (the Zoomers) who come of age during this conflict will openly reflect upon it as they lead the next Awakening.
None of this is to say that history is exactly prescriptive.
Regardless of who wins today’s election, the next Presidency will be beset by both domestic socioeconomic and foreign political upheaval.
And if history is any guide, neither is probably going to be particularly successful at preventing further escalation.
But I do see a silver lining.
Although our society might be ideologically divided, none of us have grown up during a time anywhere near as openly violent as the American Revolution or the Civil War.
Moreover, the conflict that exists here today is more one of existential political ideology than it is a dispute with a clear enemy. And unlike the Civil War, there is no clear geographic dividing line that would logically divide the nation, nor would there be a clear economic goal to be obtained by such a break-up.
As such, I simply think the escalating war of morals and rhetoric wages on until we are all forced to go through something terrible… together.
An economic crisis on the scale of the Great Depression would certainly fit the bill. But shared economic suffering usually isn’t enough, and ultimately, the country will need a common event to rally us all around the flag in order to move on to the next stage.
Or more to the point, a common enemy.
War on War
Specifically, it’s their lack of access to food and natural resources – in addition to our naval dominance over their trade routes – that are driving their near-term decisions.
Last year’s army-worm infestation devastated their crop yields, and the outbreak of African Swine Flu decimated the country’s total pork production.
Then COVID hit.
And because of that sequence of events, they’ve been heavily reliant on food imports to sustain their people.
In addition, massive flooding along the Yangtze River this year displaced millions and left them food insecure, exacerbating an already-strained agricultural supply.
And while I personally think that multilateral pressure on China – Biden’s preferred approach – would be superior to Trump’s go-it-alone recklessness, neither seems likely to deter China from escalating their border skirmishes. In fact, China was fortifying their positions as recently as last week.
However, the period since has seen heavy snow across the region, so any further movement is unlikely until weather conditions – and US geopolitical conditions – thaw out.
Meanwhile, China’s allied forces in Pakistan conducted a live ammunition military exercise yesterday in the Arabian Sea between the port towns of Karachi and Gwadar.
As I wrote two months ago, these are the same ports to which China wants access, as they would both allow a point of entry closer to their food-starved areas in the western parts of China, and would altogether bypass the shipping routes in the US-controlled Strait of Malacca.
Source: Google Maps, My Terrible Art Skills
Given the snow mentioned above, spring is the most likely time we will see any developments here. By then the outcome of the election will be long decided, and the active foreign policy already put in place.
But according to Reuters, China’s new five year plan shows a country readying for battle, saying that they will “comprehensively strengthen military training and preparation for war”. This reflects Xi’s hardening stance on both borders with India, as well as Taiwan and the disputed waters in the South China Sea.
I noted last week that there’s another political and military pressure point China could look to implement in the interim – rare earth elements.
Chinese President Xi has made several statements to that effect over the past two years. But the Pentagon has become more vocal recently about ramping up US domestic production of the magnet-making material.
Any restriction from China will push prices for neodymium and praseodymium to the moon. And the one viable US play, a SPAC called Fortress Valley Acquisition Company (NYSE: FVAC), is soon acquiring the Mountain Pass mine through its pending merger with MP Materials.
At current rare earth prices, it is hard to envision a valuation materially better than their financing price at $10 per share.
However, I’m willing to bet our conflict with China gets worse before it gets better. And picking up a speculative ¼ stake below Monday’s low of $10.80 is a decent first entry point.
Given the national mood going in, this purports to be a volatile week regardless of who ultimately wins this election – which we may not know until Friday. And our country’s economic future appears even more uncertain.
But history has shown us how to manage these cycles from an investment perspective, and that quite often, great conflict gives rise to a great unity.
So, in the meantime, the most important thing we can do is stay safe and be kind to one another.
Because we’ll need all the unity we can muster to get through this current fourth turning… together.
All the best,