Investing for the cycles of history

The demographer quoted in the AFR article is historian and economist Neil Howe. Howe, along with co-author, William Strauss, are widely credited for coining the term ‘Millennials’. They also theorised a generational theory that became the foundation of their 1991 book Generations: The History of America's Future, 1584 to 2069 and 1997’s The Fourth Turning: An American Prophecy.

In Fourth Turning: An American Prophecy, Howe and Strauss foresaw the GFC, the arrival of a new ‘Millennial’ generation, and years roiled by growing populism, partisanship, distrust and political dysfunction that have been features of Donald Trump’s takeover of the Republican Party and the global pandemic.

Amid heightened interest in their theory, last year Howe wrote The Fourth Turning is Here: What the Seasons of History Tell Us about How and When This Crisis Will End.

The new book lays out the history of the people of the United States, broken down by generations, highlighting recurring themes and events. The book highlights Howe and Strauss’s generational theory which dissects historical cycles into saeculums.

Each saeculum usually spans about as long as a long human life, and is typically broken up into four eras, referred to as ‘turnings’.

The end of each previous saeculum analysed has been marked by a crisis (the War of the Roses (1455 to 1487), the Armada crisis (1569-1597), the Glorious Revolution (1675 to 1706), the American Revolution (1773 to 1794) the US Civil War (1860 to 1865) and the Great Depression into World War 2 (1929 to 1946)).

Now, if Howe and Strauss’s generational theory is true, we are currently in the fourth turning of the seventh saeculum.

This is the case Howe’s new book argues, attempting to predict how society will emerge into the next saeculum, following this current ‘turning’ that commenced with the GFC.

According to the Chanticleer article, “the good news is that these crises precede a new societal high, when communities unite for a common purpose, institutions are rebuilt and a new national and even international identity is formed… But the bad news is that every total war has occurred during a fourth turning.”

While the immediate prediction is dire, it remains of course unpredictable. And “if the bombs are falling, what does your portfolio matter?”

Well, Howe is also managing director of demography at investment firm Hedgeye and president of consulting firm LifeCourse Associates. Among his clients is Australia’s own Future Fund.

Chanticleer states “Howe’s ominous world view suggests a few clear investment ideas. Defence ETFs, he says, have performed well in recent years, but valuations in the sector remain reasonably low, suggesting plenty of further growth.

“Infrastructure and commodities may also be a way to play this fourth turning period, which is typically marked by an increase in nationalism and a retreat in globalisation.”

A difference between this saeculum and previous ones, all of which have been impacted by or had an impact on stock markets, has been the rise of ETFs.

We think ETFs can help investors navigate through the turnings of the Strauss–Howe generational theory.