A 2023 Look at The Fourth Turning
In 1997, historians Neil Howe and William Strauss introduced the captivating concept of "The Fourth Turning," proposing that history follows cyclical patterns, with each cycle lasting 80 years and divided into four 20-year phases, each linked to a distinct generation and societal role. In September 2023, Neil Howe released his follow up book, “The Fourth Turning is Here” (Howe, 2023), illustrating how the time of the Fourth Turning is now.
As society transitions from High to Awakening, Unraveling, and ultimately Crisis, these turning points are akin to the seasons of the year, with Awakening mirroring summer and Crisis likened to winter. The pivotal "Fourth Turning" marks the climax of the cycle, where the hero generation confronts the prophet generation as they enter elderhood.
This transition is now upon us, as the Boomer generation retires and, according to the theory, yield the reins to the Millennials. Howe and Strauss indicated the Fourth Turning was anticipated to commence around 2005, plus or minus a few years, and the events of the 2008 Financial Crisis may well have triggered its initiation. As we navigate through the present day, characterized by a pandemic, social unrest, and recent contentious elections, parallels to the Fourth Turning hypothesis become increasingly evident. It's during these critical turning points that society tends to address rather than sidestep its crises.
If this prediction holds true, a major reset by 2026 looms, carrying the potential for sweeping disruptions across culture and financial markets, as well as a transformation led by Millennials. Investors should take heed, maintaining a long-term perspective characterized by risk planning, diversification and patience, as history has shown that markets may crash, but have a propensity to rebound from turmoil and reach new highs.
The Four Phases of The Fourth Turning
High: Spring and the Promise of Growth
This is the initial phase following a period of crisis, characterized by strong institutions and a united, collective sense of direction.
Individualism tends to be weaker during this time, and society is generally confident about its shared goals.
However, those who do not conform to the mainstream opinion might feel constrained.
An example of "The High" is the post-World War II American period from 1946 to 1963.
Awakening: The Warmth of Summer
The second turning, "The Awakening," is a time when institutions are challenged in the name of personal and spiritual autonomy.
Society, having achieved progress, suddenly shifts its focus toward self-awareness, spirituality, and personal authenticity.
Young activists view the previous High as a time of cultural and spiritual emptiness.
An example of "The Awakening" is the "Consciousness Revolution" in the U.S., spanning from the mid-1960s to the early 1980s.
Unraveling: The Autumnal Challenges
The third turning, "The Unraveling," is quite the opposite of "The High." Institutions become weak and are viewed with skepticism, while individualism thrives.
Highs come after Crises when society unites to rebuild and avoid a repeat of past disasters. Unravelings come after Awakenings when society seeks individuality and enjoyment.
An example of "The Unraveling" is the period that began in the 1980s, which includes the Lawson Boom and the Culture War in the U.S. The Lawson boom was a prime example of an economic 'boom and bust' cycle driven by factors like escalating house prices, tax cuts, lower interest rates, and heightened confidence. Despite rapid economic expansion, the boom led to increased inflation and a larger deficit. Efforts to curb inflation resulted in the 1991-92 recession.
Crisis: The Harsh Winter
The fourth turning, "The Crisis," is a time of upheaval, often involving wars or revolutions. During this period, existing institutions are torn down and rebuilt in response to a perceived threat to the nation's survival.
After the crisis, civic authority is again rejuvenated, cultural expression is redirected toward a common purpose, and people identify themselves as part of a larger, united community. According to Howe’s newest book, although painful at the time, this period is actually beneficial and necessary for the country to reconstruct and rejuvenate the social institutions and redefine the values of the people.
An example of "The Crisis" is the period starting with the Wall Street Crash of 1929 and ending with World War II in the U.S. The G.I. Generation, born between 1901 and 1924, was shaped during this era and characterized by confidence, optimism, and a collective outlook.
The years following a crisis are shaped with confidence and optimism.
The Fourth Turning, also known as the "Crisis" phase, marks the climax of this cycle, where the younger hero generation confronts the aging prophet generation. This is a pivotal moment as it transitions society into a new era. Notably, in the current fourth turning, the Boomer Generation retires, making way for the Millennials to take charge. As we explore this critical juncture, we'll analyze its potential impact on investment planning.
The Onset of the Fourth Turning
In 1997, Howe and Strauss predicted the Fourth Turning would commence around 2005, consistent with significant events, such as the 2008 Financial Crisis acting as catalysts. Their projection includes a rapidly approaching "Great Devaluation" for economic restructuring, starting around 2026.
However, in Howe’s recently released book, “The Fourth Turning is Here” (Howe, 2023), he indicates recent global events show the probability that, not only has the Fourth Turning likely begun, but it could potentially last as long as the early 2030’s. As we delve into this theory, keep in mind that our investments may be influenced by these turning points, making it necessary to consider your risk management strategies.
Parallels with the Present
As we contemplate our present world, we observe remarkable similarities to the predictions of the Fourth Turning. Events such as the 2001 terrorist attack on the World Trade Center, the 2008 crash in the stock market, the global spread of the highly contagious Covid-19 leading to widespread quarantine and shutdowns, escalating social discontent and unrest, and contentious political conflicts and elections resonate with the themes discussed by Howe and Strauss. Importantly, these Fourth Turnings often serve as the backdrop for resolving both social and economic crises.
Preparing for Mass Disruption
If Howe and Strauss are correct, and the Fourth Turning indeed leads to a reset of social and financial institutions, we should brace for massive disruptions and be prepared to manage risk. Our culture and financial markets are already changing significantly, generating widespread uncertainty. The last two crisis periods recorded are considered to have been World War II and the Civil War. This leaves us to consider whether we could once again face an internal conflict within our own country or possibly another world war.
Examining the present global landscape, we find two areas of significant concern. The first is the high level of division and dissension within the US. According to one recent interview Howe gave, the only prediction made in The Fourth Turning in 1997 that has yet to come true is an internal conflict in the US leading to a division of the country or a partial secession.
One has to wonder, with the current level of tension in the country regarding social reforms and the upcoming election, how much more it would take for this, at one time unthinkable, to become a very real possibility.
The other risk event that Howe mentions is the concern of yet another world war. The last two crisis periods recorded are considered to have been World War II and the Civil War. In looking at the current state of the world, the US finds itself entangled in conflicts in both Ukraine and Gaza. The discord and uncertainty surrounding US involvement raise concerns about the heightened possibility of another world war. These geopolitical shifts carry significant implications for investment planning, underscoring the need to prioritize risks and develop an appropriate risk response plan.
The Implications for Your Investments
While it's challenging to make short-term investment decisions based on this theory, a long-term strategy remains paramount. Historical data show that markets recover from turmoil and ultimately reach new heights. A sound investment strategy hinges on diversification and patience.
However, rather than just setting a strategy and riding it out regardless of market and economic conditions, we at Client First Capital use a constant assessment of GDP and Inflation. By understanding the relationship to these numbers in terms of rate of change we are able to better manage the risk in a portfolio over time vs static asset allocation models.
Trust in Your Strategy
The temptation to adjust investments in response to market fluctuations is strong, but this can increase your risk. At Client First Capital, we're here to assist you in crafting a financial plan that aligns with your time horizon and risk tolerance. We focus on long-term asset allocation while addressing shifts in GDP and inflation, ultimately helping you reach your goals, by protecting your investment, preserving your capital against inflation and compounding the growth over many years.
Learn more about our tailored investment strategies and how Client First Capital can help you with a portfolio risk analysis to best manage whatever changes lie ahead. In the midst of the Fourth Turning, investment planning becomes a critical component of securing your financial future. By understanding the implications of this cycle and adhering to a sound investment strategy, you can navigate the changing landscape with confidence. Embrace the challenges and uncertainties, and remember, Client First Capital is here to guide you every step of the way.
