Historical Inevitability And Gold And Silver Ownership

In The End, It's The Times That Need To Be Hedged.

The Wall Street Journal's editorial writer, Daniel Henninger, registers some very important observations in the wake of the troubling events in Charlottesville.  Charlottesville, he attempts to point out, is symptomatic of something much deeper ingrained in the American psyche. "Some may say." writes Henninger, "the Charlottesville riot was the lunatic fringe of the right and left, with no particular relevance to what falls in between. But I think Charlottesville may be a prototype of a politics that is drifting away from traditional norms of behavior and purpose."  Aptly, the editorial is titled, "The Politics of Pointlessness."

Any thoughtful individual who has witnessed the chaos in Washington would say that something has gone fundamentally wrong with our system of governance and it began way before Donald Trump entered the White House.  Through all of this I keep coming back to the seminal book published in 1997 by William Strauss and Neil Howe titled The Fourth Turning.  In that book the authors predicted much of what has happened in America over the past twenty years.

Fourth Turnings Are A Time Of Crisis That Can Last 20-23 Years

The fourth turning is a time of crisis – an overturning of the existing social and economic order. The start date of the current fourth turning, according to Neil Howe, is 2008.  Since turnings typically last 20-23 years, it will end sometime between 2028 and 2031.  So a lot of water will run under the bridge before its all over.

I listened to a compelling, recent interview of Neil Howe at the MacroVoices website – a thorough review of the ideas in the book and a lengthy look at what might be next. (The full interview transcript is linked below.)  To elaborate on my short description immediately above, here is Mr. Howe's own description  of a fourth turning along with a few other important quotes from that interview:

 –– "The fourth turning is the final season of history, if you will, the final generation. And that is the period of crisis. That is the period when we tear down institutions that we’ve built, everything that’s dysfunctional. And we sort of rebuild things from scratch again. And it usually follows a period where—it’s bound up in a period where there’s complete disgust, complete distrust with what we have."

–– "And I would say these are strong parallels that we see between the decade we’ve been living through and the 1930s. Because it isn’t just what happens to/in the economy. I mean, you consider so many ways in which this last decade has recapitulated the 1930s, starting off with a financial crisis, worries about deflation, worries about declining fertility rates, and currency wars, and beggar thy neighbor policies, and radical attempts by monetary and ultimately fiscal policy to remedy the situation."

–– "I think we can be too mesmerized by the fact that the last fourth turning we had started with the Great Depression and ended with World War II. I think there are more possibilities. We could be defeated on a fourth turning. We could completely unravel on a fourth turning, giving the amazing popularity of these dystopian or alternative history drama shows on HBO and Netflix today really spelling out those scenarios."

–– "And then the crisis, when all of these problems begin to coalesce into one huge problem. It’s when the Great Recession met all of these—the rise of fascism both in Asia and in Europe, and everything came together, currency wars, everything became part of a huge problem. Which, by the resolution, you see—and this is what happens at every fourth turning. All the little problems come together into a giant problem. And the giant problem gets completely solved."

–– "So in politics we see volatility is incredibly high. If there were a political index—there is a political index, there’s a political uncertainty index which actually you can go on FRED and look at it, which is amazingly high levels compared to where it was for the last 20 or 30 years. There is a political index, but it’s very high right now as opposed to the market index which is very low. So, if you’re doing valuation divided by some measure of volatility, which is kind of your basic complacency index, that’s at record high levels now in markets. But you’d have to say complacency is at record low levels in our political and civic life. We’re totally nervous. We even, I think, to some extent, fear that we’ve lost any kind of public square, the ability to even have a public discourse on every issue. I think that that is a real problem.”

Historical Inevitability And Portfolio Preparation: Gold And Silver Ownership

There is a certain amount of inevitability in Howe's analysis that a good many will have a hard time accepting, but I am among the group that believes that we are carried on great waves of history whether we like or not.  That is why cycle theory has always appealed to me since my early days in the investment business.  I chose to become a gold and silver broker (back in 1973) because I have always believed that there are good and bad times economically, and when the bad times roll around, that is when you want to be sure that you have made preparation, and most advisedly well ahead of the trouble. Markets cycle.  Politics cycles.  Economies cycle.  Nature, by the way, cycles.  And when you really put on your thinking cap, that tells you why everything else cycles.

Gold and silver, unequivocally, remain the best choice to preserve capital during the secular downslopes – in times like these.  Whenever we watch what's going on out there and you can't seem to figure out why people are behaving the way they are, just remember that we are in the grips of a fourth turning and this is the way it is going to go and, as Howe points, it could get considerably worse.

My concern is getting across the bridge between the great crisis that may still be ahead of us and theresolution that comes at the end of fourth turning.  That is why I own gold personally and why I think every thinking, well-established individual financially should own it as well.  The name of the game is to protect wealth and not leave your life work on the table when the crisis hits with full force.  A diversification of about 10%-30%, in my view, will get the job done. How high you go within that range depends upon on how strongly you feel about what is going on.

Why I Put So Much Stock In The Book, The Fourth Turning

You may wonder why I put so much stock in Strauss and Howe's The Fourth Turning.  Besides making a great deal of sense as a view of how we as human beings move through history from one generation to the next, the authors presciently predicted the 2008 financial crisis eleven years before it happened.

From The Fourth Turning:

"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."

Talk about hitting the nail on the head.  The last two sentences tell it all as we now live through the experience.  I have always said that the gold and silver owner can afford to sit back and watch the show with a certain amount of detachment and comfort knowing you have done your best to protect your assets.  Gold certainly worked for its owners during the first stage of the fourth turning when gold went from roughly $700 per ounce to nearly $2000 at its peak before working back to current price levels. Silver did equally well going from roughly $16.50 to over $50 at its peak.

It is likely to work in the next stage of the cycle as well.  As we watch the social, economic and political implosion unfolding around us, you begin to wonder whether or not it has come time for the great middle of America to kick back a bit and take a more detached approach to the problems, and that is what Daniel Henninger is driving at in his editorial.

Neil Howe in his interview mentions a "political uncertainty" chart in the final quote in that section above available at FRED.  I think he may have been talking about this chart, but even if it isn't it tells the same story.  As you can see in the following chart, economic uncertainty has been running at a high level since the year 2000 and in direct correlation to gold's secular bull market. Since 2008, for good reasons, the uncertainty has been running at consistently high levels and on a hair trigger. The current lull might simply be the calm before the next storm which, in my opinion, is already visible on the horizon.

I will end by returning to Daniel Henninger's thoughtful editorial this morning and recommend that you read it in full along with Neil Howe's interview.  Howe's interview transcript and Henninger's editorial are both linked immediately below.  Unfortunately, Henninger's full article is not published in the clear, but Fox posted the beginning with a link to the full article.  Here is the thought with each he ends the piece.  It's a good one.

"Amid the torrent, an odd paradox emerges:  People are consuming more content and detail about politics than ever and more content and detail about politics than ever, and more people than ever are saying, "I have no idea what is going on." Someone is at fault here, and it is not the absorbers of the information. Charlottesville is being pounded into the national psyche this week as paroxysm of white nationalism.  On current course, the flight from politics is going to look like rational behavior."

If you have an abiding interest in the kind of analysis you are now reading, you might appreciate our monthly newsletter compiled and written by Michael J. Kosares, the author of the popular investor guideline,  The ABCs of Gold Investing: How to Protect and Build Your Wealth with Gold (Third Edition).  You can sign-up for it here.  Always timely.  Written for gold and silver owners or for those thinking about it.